SCANDIS: Weakness Through July Partly A Function Of Broader Dollar Correction

Scandi currencies are once again underperforming the G10, with EURNOK and EURSEK each up 0.3% on the session. This morning’s NOK weakness may be a function of the latest pullback in Brent crude futures, but it’s also worth viewing recent moves in the context of the broader USD rebound.

• As highlighted on several occasions this week, the DXY found support from the long-term trendline drawn from the 2011 low at the start of July. Yesterday’s US CPI data, which provided the first real signs of tariffs filtering through to consumer prices, helped the DXY pull further away from this support.
• NOK and SEK outperformed the G10 basket through Q1 and much of Q2, with early tariff fears contributing to a broader diversification away from US assets. NOK is seen as fairly insulated from tariffs given its low manufacturing share and commodity-heavy export mix. Meanwhile, SEK has benefitted from a repatriation/reallocation of fund flows into domestic equities alongside spillovers from increased German/European defence spending-related optimism.
• The corrective behaviour in the YTD dollar downtrend (alongside the resilience of US equities in the face of ongoing tariff/fiscal uncertainty) over the past few weeks has prompted a partial unwind of key FX themes from earlier this year. We have also previously highlighted a fading SEK-positive flow from Swedish Equity Investment fund data as of June.
• Monetary policy outlooks may also be playing a role. EURSEK has fully reversed the hawkish reaction to the July flash inflation data, suggesting FX markets do not consider the print a serious impediment to future Riksbank easing. Meanwhile, after surprising with a 25bp cut in June, expectations are now for Norges Bank to continue easing at a steady quarterly pace.
• EURNOK has pierced the July 2 high at 11.9156, narrowing the gap to the psychological 12.0000, which has provided soft resistance on several occasions since 2023. Meanwhile, EURSEK is just shy of 11.3203, the 76.4% retracement of the Feb – April selloff.