The Pound Sterling to Norwegian Krone (GBP/NOK) exchange rate was trending higher prior to the Norges Central Bank interest rate decision, with the pairing having moved from a low of 11.9887 to a high of 12.2276 over the previous five days.
While falling oil prices put the Norwegian Krone under pressure, the Pound found support in the form of positive inflation and employment data. With US crude inventories at their highest levels for 80 years, oil prices dropped by over 1% earlier this week, taking the price to $59.25 per barrel and undermining demand for commodity-driven currencies.
The UK’s latest Consumer Price Index showed that the nation emerged from deflation territory in May, with the dip below 0% proving as brief as the Bank of England (BoE) predicted. The Krone’s declines against the Pound were limited by Norway’s trade data, which revealed that the nation’s trade surplus widened by considerably more-than-anticipated in May.
But further Sterling gains were recorded on Wednesday as the Pound rallied across the board due to comparatively bullish UK jobs stats. The UK’s average earnings data showed a stronger-than-forecast increase in wages, with the 2.7% figure smashing the 2.1% forecast and being the highest result in four years.
The UK’s unemployment rate also held at a multi-year low of 5.5%. It wasn’t all positive news though, as the UK was shown to have added fewer positions than expected in the three months through April.
With the Norges bank decision on the way, and the UK set to publish retail sales figures, additional GBP/NOK volatility can be expected.
Nomura strategists stated; ‘We expect Norges Bank to cut its main policy rate by 25 basis points at its meeting this week. Economic data since the last meeting have not been strong enough to stop the planned 25bp cut, in our view. Market expectations for a 25bp cut are high, as all economists expect a 25bp cut next week based on a Bloomberg survey. Thus, the updated repo rate path will be important. We see a risk of a slight downward revision in the repo rate path, but the Bank may not assign a greater than 50% chance of another cut to 0.75% for now.’
While the Norges rate decision is likely to impact the way the Norwegian Krone trades in the short term, the currency could come under further pressure next week when Norwegian unemployment data is published.
The nation’s jobless rate is expected to increase from 4.1% to 4.2% in April, a result which is unlikely to give the Krone much of a boost.