So-called ‘Super Thursday’ was not quite the coup that traders might have expected as the Bank of England (BoE) Monetary Policy Committee (MPC) voted 8-1 in favour of maintaining the current level of interest rates and in doing so all but ruled out the possibility of a hike occurring before the first quarter of the next year. Consequently investors were inclined to move away from the Pound, which initially pulled the GBP/NOK exchange rate down to 12.8119. Although the pairing subsequently rebounded it remained in a general downtrend towards the weekend.
Norwegian Industrial Production figures, both month-on-month and year-on-year, came in above expectations on Friday, at 3.5% and 2.8% respectively. At the same time, Manufacturing Production showed a more severe drop in growth than anticipated, -3.7% rather than -0.8%. These economic concerns were compounded after the weekend by an Inflation Rate decrease which was also worse than had been expected. The economy of the Scandinavian nation is evidently feeling the effects of the global slowdown.
However, this was all quickly and easily outweighed by a surprise oil price rally that occurred on Monday. After a fortnight of particularly turbulent prices, with Brent oil having sunk to a multi-month low of $48.24 a barrel on weak Chinese imports and a global supply glut, this was a distinct relief for Norway’s key export. The 3.7% rise on the price of Brent was prompted by a refinery outage in the US, with the commodity’s value being pulled swiftly up by a marked surge in demand. As a result the GBP/NOK pairing dipped further to 12.7482.
This reprieve for the Krone proved to nonetheless be a limited one, as the People’s Bank of China (PBoC) announced a change in policy that saw the Yuan (CNY) being devalued by nearly 2% against the US Dollar (USD) overnight on Monday. Consequently, risk-sensitive and commodity currencies around the world were dragged down as Chinese buying power was significantly reduced. Global commodity prices also entered serious slides, with oil falling under the $50 mark once again. With its biggest export, and the core of its economy, under threat the Norwegian Krone suffered, with the GBP/NOK exchange rate seizing on the opportunity to recover a fair portion of the week’s losses to reach 12.9016.
The outlook for the Pound remained rather subdued today, after UK employment data failed to have a particularly stimulating effect. It was not a particular surprise that the Unemployment Rate stayed static at 5.6%, although the larger than anticipated drop in employed of -63,000 demonstrated by the Employment Change was a definite disappointment. Even so, analysts remain quite confident of an interest rate rise in the first quarter as the shortfall was attributed to issues that had surrounded the election in May. This optimism was not reflected in the current exchange rate, however, with GBP/NOK striking a fresh weekly low of 12.6908.
Over the next week Norway’s Balance of Trade and GDP data will be released. A strongly positive showing for either, however unlikely, could give the Krone a limited rally. Nevertheless, it will be the outlook of the oil markets that ultimately weigh the heaviest on the fate of the Scandinavian currency.
Sterling, meanwhile, is on track to remain bearish into the weekend, with the only major data release being the Construction Output. A rally is not out of the question should the figure prove positive as the currency looks to lift itself out of the shadow of the BoE rate disappointment.