Rumours of impending talks between Russia and the Organisation of the Petroleum Exporting Countries (OPEC) saw Brent crude break back above $36 towards the end of last week, in spite of Saudi officials soon quashing the suggestion. The appeal of risk-sensitive currencies such as the Norwegian Krone was equally improved by the Bank of Japan’s (BoJ) decision to implement negative interest rates, a move that saw markets react with optimism.
However, weak Norwegian Retail Sales figures saw the GBP/NOK exchange rate advance once again ahead of the weekend. Domestic consumer demand plunged on the month in December from 0.6% to -1.3%, indicating that the Christmas shopping period had failed to boost sales and consequently diminishing the appeal of the Krone.
Strengthening Norwegian Manufacturing PMI Failed to Support Krone Rally
Initially the Krone returned to an uptrend on Monday morning as January Manufacturing PMI unexpectedly improved. Although the manufacturing sector remained in a state of contraction the downturn nevertheless eased as the PMI climbed from 47.1 to 49.2. Given the relative fragility of the Norwegian economy amidst the current global slowdown, this stronger showing prompted an increase in demand for the Krone. As the day’s Chinese data proved rather more discouraging, though, the risk-sensitive currency struggled to hold onto those gains for long.
The GBP/NOK exchange rate equally strengthened in response to the latest UK Manufacturing PMI, which unexpectedly rose from 52.1 to 52.6. As the UK’s fourth quarter GDP had shown a disappointing lack of growth within the manufacturing sector this stronger figure bolstered hopes that economic conditions have firmed somewhat at the start of 2016. As negotiations between Prime Minister David Cameron and the European Commission continued to progress, with the publication of a draft agreement circulated on Tuesday, ‘Brexit’ fears have somewhat lessened this week to the benefit of Sterling.
Although the Norwegian Unemployment Rate proved better than expected, holding steady at 4.6% rather than rising to 4.7% as forecast, this failed to particularly support the Krone on Wednesday. In spite of fresh speculation that an emergency OPEC meeting could be on the horizon helping oil to regain some of its lost ground, the GBP/NOK currency pairing has pushed higher. This was largely due to an unexpectedly improved UK Services PMI, which strengthened from 55.5 to 55.6 in January. As the primary driver of growth within the UK economy is the service sector, accounting for 70% of the country’s GDP, this reassuring result saw the Pound markedly strengthened.
Krone May Rally on Improved Norwegian Industrial and Manufacturing Production
Thursday’s Bank of England rate decision and inflation report are likely to weaken the appeal of the Pound, however, as policymakers are expected to take a more dovish tone with regards to the monetary policy outlook. While the Monetary Policy Committee will likely remain split at 8-1 in favour of leaving interest rates unchanged, the GBP/NOK exchange rate is predicted to see fresh declines.
Ahead of the weekend the Krone could equally extend gains on the back of Norway’s December Industrial and Manufacturing Production figures, as traders are anticipating a modest improvement on the year. However, as the figures are likely to remain in contraction territory and as the US Dollar may well strengthen in response to a stronger Non-Farm Payrolls report the risk-sensitive currency could struggle to gain particular momentum.