Anna 
Global interest rates have experienced a rebound as market participants recalibrate their expectations for potential rate cuts. Despite the adjustment, analysts argue that prevailing market pricing remains overly aggressive for most G10 central banks. The belief persists that, given tight labor markets and robust wage growth, especially in areas susceptible to a resurgence of inflation, global real rates are anticipated to rise—indicating a tightening of global monetary conditions.
Amidst relatively stable oil prices, influenced by headwinds from slowing global economic growth and tailwinds from tighter supplies, such as OPEC+ production cuts, attention is drawn to the potential impact of weakening global oil demand. Analysts caution that risks in this context are tilted to the downside. Despite the ongoing conflict in the Middle East renewing focus on energy supplies and elevating freight rates, it is not currently viewed as a predominant market-moving theme.
The U.S. dollar has initiated the year on a robust note, reflecting a reevaluation of the likelihood of interest rate cuts. Similarly, the Norges Bank has found support in recent weeks due to a global relief rebound, an unexpected rate hike in December, and alterations in fiscal foreign exchange trading. Following a strong performance in December, the yen’s recent gains have reversed, with USD/JPY now trading nearly four digits higher than the year-end levels. Additionally, EUR/CHF hit its lowest level since 2015 as of the end of December, falling below the 0.93 mark.
Outlook for the near term indicates a range-bound trend for EUR/USD, while Scandinavian currencies face challenges in 2024. Despite potential upside risks to markets in the first quarter based on Fed and ECB forecasts, analysts emphasize the importance of broader central bank pricing for EUR/USD. Levels above 1.10 are considered temporary. Concerning Norges Bank, multiple factors, including relative interest rates, growth risks, equity market performance, and the prospect of higher global real rates, are seen as potential headwinds that could impact the cross rate in the €3m-€6m range. Analysts do not anticipate a sustainable turnaround for EUR/SEK at the €12 million level and expect SEK to weaken, setting a 6-12 month EUR/SEK target of 11.60, supported by cyclical factors, relative central bank pricing, and structural flow outlook.
Risks to these forecasts primarily lie in the possibility of a sharp decline in core inflation and a more resilient global economy than predicted. Furthermore, a more challenging economic landing than forecasted would necessitate significant easing of global monetary conditions, potentially leading to substantial USD weakness after an initial squeeze.
