The Pound Sterling to Norwegian Krone (GBP/NOK) exchange rate got the week off to a muted start as the Scandinavian currency received support from a rise in oil prices, which was caused by concerns over the escalating conflict in Yemen.
Over the weekend, fighting in the Middle East escalated as Saudi Arabia and its allies launched air raids and naval assaults. Ground fighting also intensified between pro-government forces and Iranian backed Houthi rebels. Last week Saudi Arabia had said that it was scaling back its campaign, but that was a falsity as the fighting worsened rather than lessened.
Saudi Arabia, the world’s top oil exporter and arch Sunni Muslim regional adversary of Shi’ite Muslim Iran, feels threatened by the Shi’ite Houthi advance across Yemen. The Houthis captured Yemen’s capital last year and forced Saudi ally President Abd-Rabbu Mansour into exile.
Oil prices increased as investors grew increasingly concerned that the fighting will disrupt Middle East supplies. Yemen is located on the strategically vital Gulf of Aden and Red Sea, which are major shipping lanes. Ships have to travel up the Red Sea to reach the Suez Canal, which leads to the Mediterranean Sea and Europe.
Also supporting oil prices were signs that oil production in the USA is slowing down. According to data, the number of active US oilrigs has declined for a record 20 weeks in a row to the lowest level since 2010. Demand for the commodity also remains high in Asia.
The Norwegian Krone is forecast to make further gains against the Pound as the week progresses as economists expect Tuesday’s preliminary UK GDP Growth Rate data to disappoint. The report is forecast to show that growth has fallen from 0.6% to 0.5% since the end of 2014.
Weaker-than-expected UK construction output, industrial production and retail sales have led to some economists predicting a drop from 0.6% to 0.3%. While first estimates of GDP are often revised in later months, it could prove to be a big blow to the Conservative Party if the figure does come in below expectations. Ahead of the May 7 general election, the Tories have campaigned heavily on their handling of the UK economy.
The Krone will also be influenced by economic data of its own. Tuesday sees the release of domestic business confidence data, which is expected to show that sentiment improved in the first quarter as oil prices, staged a recovery. Also of interest will be Norwegian retail sales data, released on Wednesday.
The Pound Sterling to Norwegian Krone exchange rate was trading in the region of 11.7744