USD/NOK forecast as the Fed and Norway’s Norges Bank diverge

The USD/NOK exchange rate plunged hard as the Norges Bank diverged with the Federal Reserve on monetary policy. The pair slumped to a low of 10.60, its lowest point since 1st September. It has dropped by over 6.28% from its highest point this year.

Norges and Fed diverge

The USD to NOK pair dropped after the Norges Bank decision. In it, the Norwegian central bank caught most economists by surprise when it hiked rates by 0.25% to 4.50%. Economists were expecting it to leave rates unchanged at 4.25%.

In a statement, the bank noted that the rate hike was necessary to reduce inflation, which remains stubbornly high. While the headline Consumer Price (CPI) dropped below 5%, core inflation is still above 6%. The statement added:

The actions of Norges Bank differed from the Federal Reserve, which left rates unchanged and pointed to cuts in 2024. Most economists now believe that the Fed will deliver at least three rate cuts in 2024. The first cut will likely happen in May or June next year.

The dovish Federal Reserve decision has led to a weaker greenback. The US dollar index (DXY) dropped to $102.5 as the currency crashed against key currencies like the euro, sterling, and Japanese yen.

The USD/NOK price action will be moderately muted for the rest of the year since the Fed and Norges Bank have already made their decisions. As such, the upcoming economic numbers like US retail sales and consumer confidence will not have an impact.

USD/NOK technical analysis

USD/NOK chart by TradingView

The USD/NOK pair has retreated in the past few days as the US dollar index plunge continues. On the daily chart, the pair has moved below the 50-day and 25-day Exponential Moving Averages (EMA), signaling that bears are in control.

The pair has also moved below the key support level at 10.58, the lowest swing on November 29th. It has also formed an ascending triple-top pattern while the Relative Strength Index (RSI) and MACD are pointing downwards.

Therefore, the outlook for the pair is bearish, with the next point to watch being at 10.40, the lower side of the ascending channel.