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GBP to NOK Exchange Rate Tumbles on Comments from Bank of England Governor

June 20, 2017 - Written by Tim Boyer

After volatile trade last week, the Pound to Norwegian Krone exchange rate could be in for another week of losses. Bank of England (BoE) Governor Mark Carney disappointed Pound traders on Tuesday, and the Krone has been stabilising.

Last week saw GBP/NOK end the week slightly lower after wide fluctuations. This week, the pair has trended in a tighter range between 10.83 and 10.73. GBP/NOK trended closer to its lows on Tuesday.

GBP Drops as BoE Governor Takes Dovish Tone

The Pound got a boost late last week as the Bank of England’s (BoE) June monetary policy decision surprised investors.

Three members of the BoE Monetary Policy Committee (MPC) voted to hike UK monetary policy. While most policymakers voted to keep rates frozen at their loosest levels, the 5-3 vote split was surprising to investors.

It indicated that more and more BoE policymakers were feeling the pressure of Britain’s surging inflation. Inflation has reached 2.9% according to last week’s Consumer Price Index (CPI) report.

However, on Tuesday Sterling dropped again. BoE Governor Mark Carney took part in a series of speeches at Mansion House and stated that Britain was still not ready for higher interest rates.

As a result, the Pound shed much of last week’s BoE-related gains.

Sterling has been kept under pressure by persistent political concerns as Brexit negotiations finally begin. Rising concerns about the economy have also kept the currency weak.

According to Kathleen Brooks from City Index;

‘This morning’s comments are important because they suggest that the Bank of England will look through the period of high inflation, headline CPI is running at 2.9%, blaming the rise on the sharp drop in sterling last year.

This could spell more woe for the UK consumer, if the BOE is not going to take action to bring down prices, this could keep the squeeze on pay packets for some time.’

NOK Edges Higher on Oil and Central Bank Hopes

The Norwegian Krone has seen mixed demand in recent weeks. Poor news from oil markets has kept the currency volatile as oil is Norway’s most lucrative commodity.

The Norwegian Krone has begun to stabilise slightly this week as oil prices rise from their lows. Analysts have noted that oil price volatility has fallen.

However, many analysts continue to predict that oil prices could still fall in the foreseeable future as the US ramps up oil production and a supply glut persists.

The Norwegian Krone has also benefitted slightly from Norges Bank news this week.

Analysts from the Dankse Bank forecast that Norway’s central bank would begin to adopt a ‘cautiously hawkish’ tone in this week’s upcoming policy meeting.

Dankse Bank expects the Norges Bank to continue holding off on hiking interest rates until towards the end of 2018.

This news has supported the Norwegian Krone slightly and helped it to gain against Sterling, but as investors had been hoping for stronger hawkishness sooner, the Krone’s strength has been limited.

GBP/NOK Forecast: Norges Bank in Focus

A lack of influential UK ecostats due for publication throughout this week means Sterling could continue to be pressured by political uncertainties

The British currency could remain range bound and its outlook may not shift unless there are surprising developments from Britain’s minority Conservative government, or from Brexit negotiations.

While Wednesday’s UK public sector net borrowing results from May could influence trade, Pound investors are more likely to focus on political news.

Norwegian Krone investors, on the other hand, are anticipating Thursday’s June policy decision from the Norges Bank.

Due to strong Norwegian data in recent months, investors have been hoping for a more hawkish tone from the central bank.

If the Norges Bank does as Dankse Bank predicts and becomes cautiously hawkish, the Krone could advance slightly. A more hawkish than expected tone would lead to NOK strength, but a more dovish than expected meeting would help GBP/NOK to recover towards the end of the week.
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