MEXICO: 25bp Banxico Cut Next Week, BofA Sees 6.00% Terminal Rate By H2 '26

EURNOK is extending higher, with the krone now comfortably underperforming the G10 basket intraday. We haven't seen an obvious driver for this afternoon’s NOK weakness, which comes despite a 2bp intraday tightening in 2-year EUR-NOK swap rate differentials.

• EURNOK is 0.6% higher at 11.9725, narrowing the gap to resistance at 11.9895 (Aug 8 high). This level shields the psychological 12.0000 handle, which the cross has been unable to sustainably consolidate above on several occasions since 2023.
• A reminder that last week's Norges Bank decision saw rates held at 4.25% and the June guidance retained almost verbatim. Although the communication lacked a clear signal for a September cut, it certainly didn’t rule out such a move. The Committee seems quite content in keeping its options open.
• Q2 GDP is due on Thursday morning, and will be one important input into the September decision and feed into the updated MPR rate path projection. Mainland GDP is expected at 0.3% Q/Q, which is line with Norges Bank's June MPR projection. Q1 mainland GDP was a solid 1.0% Q/Q, driven by household consumption and investment.

Bloomberg's interview of Fed Gov Bowman this morning brings nothing new on her monetary policy stance, with the discussion mostly on bank supervision. Asked whether there was anything to add to her previous monetary policy comments, which included her view that she saw 3 rate cuts in the remainder of 2025, Bowman says: "the story is out there and I haven't changed my views."

• She doesn't add anything on supplementary leverage ratio (SLR) reform, saying authorities "are waiting for the comment period to lapse, and then we will move forward with finalizing that proposal. "
• Asked about the Fed Chair's job, "Right now, I'm committed to doing the job I have."  And whether regulatory policy would change under the eventual next Fed chair: "I wouldn't think so. Obviously, our Board has to approve anything we put forward as a regulatory proposal. Anything that we move forward will be broadly supported by the members of the Board that are present at that time."
• With nothing new on monetary policy or SLR reform, Fed funds implied and SOFR swap spreads remain unchanged.

European Council President Antonio Costa posts on X following the conclusion of an extraordinary European Council videoconference and a call with Ukrainian President Volodymyr Zelenskyy. Costa: "I underlined the EU’s unity and unwavering support for Ukraine, as well as our commitment to maintaining pressure on Russia. [...]. We will work together with the United States on concrete and essential security guarantees. Together with President Zelenskyy and the U.S., we will prepare the next steps to achieve a just and lasting peace. We must continue to support the Ukrainian people and move forward with the enlargement process..." 

• Speaking to reporters, Costa said the "main security guarantee has to be for Ukraine to have armed forces capable of defending [its] sovereignty".
• There are notable voices of dissent within the EU on the topic of support for Ukraine. Following the call, Slovakian PM Robert Fico said that "To end the war, we must understand that Ukraine can't join NATO," and that "We will not make progress on ending the war without discussing territorial changes in Ukraine."

Separately, another high-profile virtual call will take place on 20 August, this time involving NATO military leaders. US Chairman of the Joint Chiefs of Staff Gen. Dan Caine is expected to join. 

• It is at the military leaders' level that details of the nature of security guarantees could be decided in terms of feasibility. To date, only vague suggestions ranging from boots on the ground to logistical support have been speculated upon.