As global equity markets and major commodities have been slowly returning to a state of stability after the turbulence following the severe stock market shock of August’s Black Monday, the Norwegian Krone has equally been gaining in strength. However, with Chinese slowdown concerns showing no signs of receding it remains to be seen how long the Scandinavian currency will be buoyed by these temporarily favourable headwinds.
September got off to a less-than-impressive start for the Krone as the Norwegian Manufacturing PMI fell further than anticipated, from the previous negatively revised figure of 45.4 to 43.3. Demonstrating that the domestic manufacturing sector remains in contraction, this does not bode especially well for the local currency, boosting the GBP/NOK exchange rate to a daily peak of 12.7954.
A larger than anticipated surplus on the second quarter Norwegian Current Account helped shore up the Krone in the middle of the week however while the Pound was driven progressively lower by a succession of UK PMI underperformances. Weighing heavily on the GBP/NOK pairing these Manufacturing, Construction and Services results all lent credence to the idea that the UK economic recovery is struggling in the face of global headwinds. Together this pushed the GBP/NOK exchange rate to a then-monthly-low of 12.5769.
Monday saw some decided disappointment on Norwegian data, however, as the month-on-month Industrial Production and year-on-year Manufacturing Production for July fell tremendously short of forecasts. Both figures had been expected to show contraction in the month but not to quite the extent that was ultimately reported, with the manufacturing number in particular clocking in at -6% instead of a slightly more optimistic 1.63%.
While Sterling was not supported by any fresh domestic data on Tuesday the currency made decided gains across the board throughout the morning as some measure of optimism appeared to take hold of trading ahead of the upcoming Bank of England (BoE) Rate Decision and 12-month Inflation Forecast. This prompted the GBP/NOK conversion rate to climb to a weekly peak of 12.7556, although this strong trend was not long sustained.
With markets reassured by the announcement of a new ‘circuit breaker’ mechanism on the Chinese indexes, which will prevent another plunge of similar magnitude to Black Monday, a certain level of risk appetite also returned to trading. Global benchmark Brent crude has thus risen again to recoup a decent portion of the previous day’s losses and is presently trading at around $48 a barrel.
Later in the week the release of the Norwegian Inflation Rate data on Thursday will likely prompt some level of movement for the GBP/NOK pairing, as will any particular fluctuations in the oil market. However, this is sure to be overshadowed by the upcoming BoE reports, with the Krone standing to benefit from any dovish tilt that may be displayed. As the global oil glut seems set to continue though the Scandinavian currency could well see a return to bearishness in the coming days.