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Pound Norwegian Krone Exchange Rate Dragged Down as Norwegian Inflation Surges

February 10, 2021 - Written by Frank Davies

Leap in Norwegian Inflation Drags Pound Norwegian Krone Exchange Rate Lower

The Pound to Norwegian Krone (GBP/NOK) exchange rate remained under pressure thanks to an unexpectedly strong uptick in January’s Norwegian inflation rate.

While forecasts had pointed towards the inflation rate rising from 1.4% to 1.7% on the year investors were caught off guard as the figure instead surged to 2.5%.

This sharp increase in inflationary pressure could give the Norges Bank greater cause for confidence going forward, raising the potential for monetary tightening measures in the months ahead.

As the oil market also held onto a positive footing over the course of the day this helped to shore up the Norwegian Krone further, leaving the GBP/NOK exchange rate trending lower.

Norwegian Growth Slowdown May Dent NOK Exchange Rate Gains

However, the mood towards the Norwegian Krone could sour sharply ahead of the weekend thanks to the release of the fourth quarter Norwegian gross domestic product report.

After the strong 4.6% quarterly growth rate seen in the third quarter markets are wary of the potential for a dramatic loss of momentum in the final three months of 2020.

If the quarterly growth rate drops to just 0.5% as forecast this could see NOK exchange rates dragged lower across the board.

Even though such a result would still paint a relatively positive picture of the Norwegian economy any signs of slowdown are likely to weigh on the appeal of the Norwegian Krone.

As long as investors see reason to bet that the Norwegian economy has come under greater pressure in the face of the ongoing pandemic this could leave NOK exchange rates on a weaker footing.

Disappointing Fourth Quarter UK Growth Forecast to Limit Pound Appeal

On the other hand, the Pound could also face a loss of support in the wake of the UK’s fourth quarter gross domestic product data.

As markets wait to see the impact that the November lockdown had on the overall fourth quarter growth rate the potential for fresh GBP/NOK exchange rate losses remains.

Unless the report can deliver another solid quarter of growth momentum worries over the outlook of the UK economy look set to pick up once again.

The Pound could face particular pressure if the quarterly growth rate falls into negative territory, with the risk of a double-dip recession likely to weigh heavily on GBP exchange rates.

With December’s set of industrial and manufacturing production figures also looking set to show signs of weakening economic activity the Pound could face a sharp bout of selling pressure heading into the weekend.
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