BUY EURNOK 3m Risk Reversal

The Norwegian krone (NOK) has come under pressure following the Norges Bank's unexpected rate cut on June 19, which lowered its deposit rate by 25 b ps to 4.25%. This move, justified by a quicker-than-expected decrease in inflation, has led the EUR/NOK exchange rate to rise from a low of 11.40 to 11.84. The Norges Bank anticipates a gradual normalization of rates, aiming for just below 4% by the end of 2025, while market expectations suggest additional cuts totaling around 46 b ps by then. In contrast, the euro benefits from the European Central Bank nearing the end of its rate cut cycle, coupled with expectations for improved economic growth and a weaker dollar. Despite th e rebound of the EUR/NOK , the options market remains subdued, with 25D 3-month Risk Reversals at historically low levels and not reflecting the potential for a weaker NOK. In that respect, it is interesting to buy the EUR/NOK 25D 3m risk reversal.