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GBP NOK Exchange Rate Holds onto Gains After Bullish Services PMI

May 4, 2017 - Written by James Fuller

A trio of better-than-expected UK PMIs offered support to the Pound Norwegian Krone exchange rate, suggesting that the economy is bouncing back from a weak first quarter.

The manufacturing, construction and service sectors all demonstrated a solid level of growth on the month, even as price pressures continued to build thanks to the post-referendum fall of Sterling.

However, as new car registrations plummeted and mortgage approvals diminished GBP exchange rates struggled to gain any particular momentum on Thursday morning.

Investors continue to expect the Bank of England (BoE) to maintain its neutral policy outlook at next week’s meeting, limiting the upside potential of the Pound.

As James Knightley, senior economist at ING, noted:

‘The combination of healthy growth and rising inflation is likely to lead to further calls for higher interest rates. However, we still feel that Brexit related uncertainty and weaker spending power will lead to lower growth in the UK economy overall. Also, weakening wage growth suggests there isn’t any real build up in domestically generated inflation pressures.’

Brexit-based worries are expected to continue weighing on the GBP NOK exchange rate in the near term, with relations between UK and EU officials having soured somewhat.

If rhetoric continues to harden then the odds of the UK facing an exit without any replacement trade deal are likely to rise, to the detriment of the Pound.

The latest Norges Bank policy meeting failed to encourage any particular demand for the Norwegian Krone, with interest rates unchanged in line with market expectations.

While this meeting was not accompanied by an updated Monetary Policy Report policymakers indicated that rates are likely to remain on hold for some time to come.

Demand for the commodity-correlated Krone was also limited by a fresh decline in oil prices, as markets were disappointed by a smaller-than-expected dip in US crude stockpiles.
With the prospect of an extension to OPEC’s production cuts seeming uncertain investors have seen little reason to favour the more risk-sensitive Krone at this juncture.

A bullish US Dollar could keep the Krone on a weaker footing ahead of the weekend, particularly if stronger labour market data is seen to raise the likelihood of the Federal Reserve hiking interest rates in June.

Another rallying point could be in store for the GBP NOK exchange rate if March’s Norwegian industrial and manufacturing production figures fail to show an improvement in the domestic economy.

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TAGS: Pound Norwegian Krone Forecasts

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