Key Moments
- BNY’s Geoff Yu notes that EUR positioning has shifted from a “hedge the Dollar” stance to a net underheld status.
- The Norwegian Krone may weaken if energy prices peak and Norges Bank resumes FX purchases.
- EUR and NOK sit at opposite ends of the FX spectrum, reflecting Eurozone stagflation worries versus Norway’s trade strength.
Contrasting Backdrop for EUR and NOK
BNY Strategist Geoff Yu observes that flows in the Euro reversed. Previously, investors used EUR as a hedge against the Dollar. Now, the Euro is net underheld. By contrast, the Norwegian Krone (NOK) remains crowded, supported by favorable trade conditions and Norges Bank policy expectations.
Yu highlights emerging stagflation concerns in the Eurozone due to high energy costs. Meanwhile, Norway enjoys a positive terms-of-trade shock. He points out that Norges Bank has largely pre-committed to a rate hike, making it the only major European central bank doing so.
Mean Reversion Potential if Ceasefire Holds
Yu expects FX flows to revert if the ceasefire holds over the next two weeks. Currencies hit hardest included emerging markets with balance-of-payments stress and developed currencies exposed to stagflation. At the other end, energy- and commodity-linked currencies with policy room were supported.
He adds, “EUR and NOK occupy opposite ends of the spectrum: the Eurozone struggles with stagflation, while Norway benefits from strong terms-of-trade and a committed central bank hike.”
EUR Flows Shift to Net Underheld
Yu emphasizes the scale of the Euro repositioning: the previous hedge-the-Dollar flows have unwound. The Euro is now net underheld. Forward buying for hedging purposes has largely ceased. This lowers the threshold for a reversal in flows if sentiment improves.
NOK Strength Faces Potential Headwinds
Despite strong fundamentals, Yu warns that NOK gains may pause. If energy prices peak, the Krone could face pressure. Even with high energy receipts, Norges Bank may resume FX purchases, which could limit further NOK upside. Holdings remain the strongest among European currencies.
EUR vs NOK Positioning Overview
| Currency | Positioning / Flows | Macro/Policy Context | Key Risk/Constraint |
|---|---|---|---|
| EUR | Net underheld after hedge-the-Dollar flows unwind | Eurozone faces stagflation as energy costs rise | Flow reversal easier if sentiment improves |
| NOK | Holdings strongest among European currencies | Positive terms-of-trade shock; Norges Bank pre-committed to hike | FX purchases may resume if energy receipts meet financing needs |
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