The last week has been a fairly turbulent one for the GBP/NOK exchange rate, driven primarily by a raft of mixed British data and fluctuating trends on the global oil market.
Tuesday’s UK Consumer Price Index proved significantly disappointing, as domestic inflation was revealed to have grown by 0% on the year in August to clock in below forecast. Following on the heels of the Bank of England (BoE) having revised its 12-month Inflation Forecast from 2.2% to 2%, this strongly encouraged worries that the UK economy remains in a much more fragile state of recovery than might have been assumed. Given the importance placed upon the improvement of the inflationary outlook before the Monetary Policy Committee (MPC) will comfortably opt to raise interest rates, this seemed to suggest that a hike will not be likely before the second or third quarters of 2016. As a result the GBP/NOK currency pair slipped into a slump in the range of 12.5545.
Somewhat overshadowed by this, the same day saw the release of the Norwegian Balance of Trade figure. This showed that the domestic trade surplus narrowed by a greater degree than anticipated in August, to 20.8 billion rather than 22.9 billion Krone, as the nation’s oil exports were squeezed by the global slowdown in demand and slumping prices. Given the pessimistic projection that oil will go as low as $20 a barrel over the next year, published in a recent report from Goldman Sachs, the longer-term prospects of the commodity on which the Norwegian economy rests do not appear to be encouraging.
Nevertheless, it wasn’t until Wednesday that the GBP/NOK conversion rate began climbing rapidly out of its slump to strike a fresh weekly high of 12.7121. The primary driver behind this movement was the release of the UK’s Unemployment Rate and Average Weekly Earnings for the three months to July, both of which showed surprising improvement. While domestic unemployment fell by 5.5% the average weekly wage rose far beyond expectations with a jump of 2.6%, the highest rate of increase in six years. Naturally this hawkish data reopened discussion with regards to the date of a BoE rate hike, with Governor Mark Carney even suggesting that a rise could occur sooner than previously thought if further data shows similar improvement.
Weak Asian data on Thursday morning set oil on a fresh downtrend, and the Krone along with it, as a marked decline in US stockpiles was eclipsed by this new sign of contracting demand and economic slowdown. Industry benchmark Brent crude slid back below $50 a barrel, with the momentum of the commodity’s recent rally neutralised. As the outcome of the evening’s upcoming Federal Open Market Committee (FOMC) meeting remained uncertain, although the majority of economists suggested no change on interest rates, this equally weighed on the ailing oil market.
Should the FOMC vote to hike and the ‘Greenback’ strengthen it is probable that the Krone will experience a distinct downturn, as oil prices are crunched and global demand continues to be strongly outpaced by supply. A more dovish result, on the other hand, could push down the GBP/NOK exchange rate on a consequent rise in risk sentiment.