The Norwegian Krone (NOK) advanced against the Pound Sterling (GBP) and other peers on Wednesday as it received support from a sharp rise in oil prices. The rise was due to heightened concerns over the situation in the Middle East and the weakening of the US Dollar (USD).
On Tuesday, the conflict in Yemen escalated as mortars and long-range rockets rained down upon the Saudi Arabian city of Najran. Cars and buildings were destroyed, marking the first significant offensive against Saudi territory by Iranian backed Houthi rebels. The attacks came in response to Saudi airstrikes, which have hammered the rebels inside Yemen. Adding to fears that the conflict is escalating was news that Senegalese soldiers were heading to Saudi Arabia to help protect the kingdoms borders. The announcement marks the first non-Arab nation to join Saudi Arabia’s coalition.
Oil prices also rose after Saudi Arabia announced that it has raised its official selling prices for its Arab light grade crude to the USA and Europe. A disruption to Libyan oil output also added to the price rise. The oil port of Zueitina is one of the few ports still exporting oil as many others have closed due to the fighting raging in the country. The port was closed as protestors blockaded it, knocking the nation’s output to below 50,000 barrels per day.
The Norwegian Krone is likely to continue to receive support from oil prices as many analysts are forecasting that prices will continue to rise.
‘Depending on how production figures turn out, the new highs could be tested again. If production drops below 9.3 million barrels a day, we find it very likely that prices would break this and end off at $62.33 and $69.11 for WTI and Brent respectively,’ said analysts.
The Pound was unable to regain ground despite the release of data, showing that growth in the UK’s dominant services sector jumped to its highest level in eight-months in April. Research firm Markit said the Services Purchasing Managers’ Index rose to 59.5 in April from 58.9 in March. Economists had forecast a decline to 58.5.
A reading below 50.0 indicates activity is declining, while a reading above that level implies it is increasing.
The Pound Sterling to Norwegian Krone was trading in the region of 11.4235
Market attention will now focus on Thursday’s UK general election and the interest rate decision by the Norwegian Central Bank. The Norgesbank is expected to cut rates from 1.25% to 1%. However, the recent increases in oil prices could cause policymakers to resist cutting, a move that would take the markets by surprise and create volatility for the Norwegian Krone exchange rate.