May 22, 2017 - Written by Frank Davies
STORY LINK GBP to NOK Exchange Rate Tumbles on UK Election Concerns and Oil Price Strength
Recent strong UK data has been unable to keep the British Pound to Norwegian Krone exchange rate buoyed, as the pair plunged last week and continued to tumble when markets opened on Monday morning.
Last week saw the GBP/NOK exchange rate fall from 11.03 to 10.92 after failing to recover in the middle of the week. On Monday morning the pair dropped again, falling to a one-month-low of 10.86.
Sterling dropped last week as strong UK data failed to sufficiently offset concerns about Britain’s economy slowing later in the year, which has weakened any hopes of tighter monetary policy from the Bank of England (BoE)
A GBP recovery inspired by strong retail sales data was cut short due to a sudden Pound ‘flash crash’ late in the week.
On Monday, the British currency continued to fall amid fresh concerns about next month’s UK general election.
Previously forecast to see a clean, landslide win in the election, UK Prime Minister Theresa May’s Conservative party has seen its polling lead halve in one week due partially to a controversial policy proposal in the Conservative manifesto.
Among the Conservative social care reform plans was a proposal to have elderly citizens pay for healthcare unless their assets are below £100k. As the elderly make up a key part of the Tories’ demographic, opponents have capitalised on criticism of this plan.
Labour has named the plan a ‘dementia tax’ and argued that it targets those unlucky enough to become ill in their old age. The polling gap between the Conservatives and Labour has dropped from around 20 to around 10 points with some pollsters showing only a single-digit lead for the Tories.
As the Conservatives have already formally begun the Brexit process, the possibility of Brexit negotiations changing hands to Labour has clouded forecasts and made markets jittery.
Any chance that the projected Brexit plan could be taken off-track has the potential to cause major Pound losses, so UK political developments will see stronger market focus until the election on the 8th of June.
Sterling remained weak at around midday on Monday, despite news that Theresa May was planning to alter her social care plans in hopes it would narrow her party’s recent polling losses.
Meanwhile, the Norwegian Krone has benefitted in the last week from news that oil prices had increased.
Oil producers from OPEC and non-OPEC nations have indicated that they will agree to extend oil production cuts into 2018, bolstering hopes that oversupply of the commodity will finally end and prices will see more long-term improvements.
Prices of Norway’s most lucrative commodity rose above US$50 per barrel for the first time in a while last week and speculation has risen that the next oil output cap plans could be longer and deeper than the previous one.
The coming week’s data is unlikely to have a significant influence on the Pound to Norwegian Krone exchange rate, at least compared to political news.
Britain’s second Q1 Gross Domestic Product (GDP) projection will be published on Thursday, but GBP investors are more likely to focus on political developments.
If investors are impressed by Theresa May’s social care plan changes, GBP/NOK could recover to trade near the week’s opening levels, but if the polling gap between the Conservatives and Labour continues to thin the Pound will weaken further as uncertainty rises.
Wednesday’s Norwegian unemployment rate figures from March have the potential to drive the Norwegian Krone slightly, but oil price changes and the strength of the Pound are more likely to influence GBP/NOK this week.
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TAGS: Daily Currency Updates Norwegian Krone Forecasts