The Norwegian Krone advanced to its strongest level in a month against the Pound Sterling on Tuesday as the UK currency was weakened by softer-than-forecast inflation data and as economists suggested that oil prices could rally to $70 per barrel over the next three to six months.
The Norwegian Krone to Pound Sterling exchange rate touched a session high of 0.08621
The Nordic currency added to its recent run of gains, which was triggered by last week’s surprise decision by the Norwegian Central Bank to leave interest rates unchanged at 1.25%.
‘The key policy rate was reduced in December to counter the risk of a pronounced downturn in the Norwegian economy on account of lower oil prices. So far, the effects on the real economy have been relatively small, and house prices are still rising at a fast pace,’ said Bank governor Oystein Olsen after the announcement.
Since then the currency has been supported by a strengthening Euro and weakening US Dollar.
Also supporting the Norwegian Krone was a report released by Signal Investment Research, which said that oil prices have fallen too far too fast and that crude oil could return to $70 or $80 per barrel over the coming months.
‘The price of oil has come down to $55, which a huge amount for the amount that we are oversupplied. People think it’s just because we’re oversupplied, but there’s a lot of reasons why we’re oversupplied, and those factors will reverse,” said Stephen Davis, the CEO of Signal Investment Research.
The three main reasons why prices will rise according to Davis will be the strength of global economic growth, increasing demand from the improving US and Eurozone economies and a softening US Dollar. A weaker ‘Greenback’ supports oil prices due to crude oil being traded in Dollars, making the commodity more affordable to holders of other currencies when the currency falls.
Meanwhile, the Pound Sterling weakened against all of its most traded peers as inflation in the UK was shown to have fallen to a record low level of zero in February as food and fuel prices tumbled.
The data increased expectations that the Bank of England (BoE) will now delay any interest rate rises as inflation falls further away from its target of 2%. Last week the BoE’s chief economist said that a rate cut was now just as likely as a rate rise.
The Pound Sterling to Norwegian Krone (GBP/NOK) exchange rate traded in the range of 11.6840.