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GBP NOK Exchange Rate Benefits from Sliding Oil Prices

May 9, 2017 - Written by John Cameron

With risk appetite generally faltering the Pound Norwegian Krone (GBP NOK) exchange rate was encouraged to return to an uptrend.

Although markets were relieved that centrist Emmanuel Macron had emerged victorious in the French presidential election it was not long before the initial boost in risk appetite faded.

Weaker-than-expected Norwegian industrial and manufacturing production figures also put renewed pressure on the Krone at the start of the week, leaving the risk-sensitive currency with little in the way of support.

Despite comments from Saudi Arabia suggesting that OPEC could extend its production limiting agreement past June the price of oil has remained trapped below the US$50 per barrel mark.

As US shale output has continued to rise the global oversupply glut has persisted, adding downside pressure to the commodity-correlated Krone.

Confidence in Sterling, meanwhile, strengthened in response to an unexpected leap in the British Retail Consortium (BRC) like-for-like sales.

While at least some of the boost was undoubtedly due to the timing of the Easter holidays the 5.6% uptick in sales nevertheless encouraged the GBP NOK exchange rate to extend its gains further.

Even so, as Helen Dickinson, Chief Executive of the BRC, noted:

‘Shop prices are still down overall although other items of consumer spending are increasing headline inflation and hence driving a tightening of purse strings. Although today’s figures do indicate that consumers are still willing to spend, with a cocktail of rising costs and slowing wage growth as the backdrop, conditions for consumers will get tougher.’

With markets continuing to expect the Conservatives to return to power with a larger majority any Brexit-based jitters were relatively limited during Tuesday’s European session.

Demand for the Krone could pick up on Wednesday, however, if April’s Norwegian inflation data proves encouraging.

Forecasts point towards an uptick of 1.9% in core inflation on the year, something which could encourage the Norges Bank.

Any signs of greater resilience within the domestic economy could offer the Krone a rallying point, although the latest US crude inventories report may prompt a fresh slump in oil prices.

Volatility is likely in store for the Pound ahead of the Bank of England (BoE) policy meeting and Inflation Report, which could cement the dovish outlook of policymakers.

However, if the inflation forecasts indicate that price pressures are likely to accelerate further over the coming months this could encourage speculation that the BoE could shift towards a more hawkish approach.
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