The US Dollar to Norwegian Krone (USD/NOK) exchange rate began last week trading in the region of 7.6979 before rallying to a high of 7.8992 on Friday after the US published impressive employment figures.
As the surprisingly upbeat US jobs data made a summer interest rate increase from the US Federal Reserve more likely, the US Dollar advanced on almost all of its peers following its release.
The Krone held declines against the ‘Greenback’ over the weekend and extended losses on Tuesday in response to the publication of Norwegian inflation data.
Economists had expected underlying (or core) inflation in the region to pint at 2.5% in February, but it actually came in at 2.4% – unchanged from the previous level.
The figure saw the Krone hit a 3-week low against the Euro after shedding 0.7% and triggered a 1.7% tumble against the US Dollar.
Non-core inflation printed at 1.9% year-on-year last month, down from the annual figure of 2.0% recorded in January and less than the 2.1% CPI number projected.
The slide in consumer price gains was largely due to a 2.9% drop in clothing and footwear prices.
The downtrend in the Norwegian Krone is due to concerns that Norges Bank, Norway’s central bank, may introduce an interest rate cut in the months ahead to counter falling inflation.
In December the institution slashed borrowing costs to 1.25% and economists are now pricing in the key policy rate being reduced to 1.0% in March, with another rate revision possibly taking place in June.
The Pound also took advantage of the broad-based Krone weakness, with the Pound Sterling to Norwegian Krone (GBP/NOK) exchange rate climbing 1.2% to hit a high of 12.1517 during the European session.
Further Norwegian Krone volatility could occur this week as a result of oil price fluctuations and global economic developments.
If this week’s run of US reports (including Initial Jobless/Continuing Claims figures and the nation’s Advance Retail Sales data) support the case in favour of higher US borrowing costs, the Norwegian Krone could fall beyond today’s 12-year low.
Although ecostats for Norway are in short supply in the days ahead, next week sees the release of the nation’s trade balance figures for February and the Norges Bank interest rate announcement.
Should the central bank slash interest rates, we can expect a sharp drop off in demand for the Krone.
During the European session the US Dollar to Norwegian Krone (USD/NOK) exchange rate was trading in the region of 8.0507 – the strongest levels achieved since 2002.