Disappointing Norwegian GDP Dented Krone
Confidence in the strength of the Norwegian economy continued to decline in the wake of the fourth quarter Norwegian GDP report, as growth proved substantially weaker than pundits had expected. On the year growth slowed from 2.6% to just 0.1%, while the quarterly measure unexpectedly contracted by a sharp -1.2%.
This did not encourage particular demand for the Norwegian Krone, with disappointing domestic growth likely to prompt the Norges Bank to adopt a more dovish outlook in line with its European rivals.
Although oil had retreated from its earlier rally as a meeting between Saudi and Russian officials failed to secure a production cut the price of crude soon began to recover from the initial disappointment. An agreement was reached to freeze production at January levels, which had been a record high, providing that all other major producers signed on. A far cry from the pact that traders had hoped for, this saw the commodity rapidly reverse its recent gains.
Nevertheless, as a special accommodation was posited for Iran, having only returned to the market at the beginning of the year due to sanctions, hopes for a more concrete deal were bolstered. With investors keen to keep Brent above the key resistance level of $30 per barrel and positive indications from Iranian officials crude returned to a rally ahead of the weekend, boosting the Krone.
BoE Interest Rate Hike Looks Increasingly Distant
Meanwhile, disappointing UK employment data had weighed on the Pound Sterling to Norwegian Krone exchange rate as hopes for a nearer term Bank of England (BoE) interest rate hike continued to diminish. Traders were discouraged at the ILO Unemployment Rate failed to dip as forecast and wage growth continued to slow in earnest, offering little incentive to policymakers to take a more hawkish outlook.
A strong improvement in Public Sector Net Borrowing helped to shore up the GBP/NOK currency pair on Friday, however. The figure saw the deficit narrowed by -11.8 billion Pounds, improving the odds of Chancellor of the Exchequer George Osborne meeting his Autumn Statement targets and boosting Sterling confidence.
The entirety of those gains were summarily wiped out on Monday morning as the Pound plunged in response to the official announcement of the UK’s June referendum on EU membership. As London Mayor Boris Johnson pledged his support for the ‘Leave’ campaign the apparently increased possibility of a ‘Brexit’ saw Sterling slump substantially across the board.
GBP/NOK Hits Eight-Month Low on ‘Brexit’ Fears
Uncertainty is now expected to weigh heavily on the UK economy, and the appeal of the Pound, in the run-up to the June vote, which offers little incentive for investors to buy back into the softened currency. As downwards momentum continued to build the GBP/NOK exchange rate consequently fell to an eight-month low of 12.0259 on Wednesday morning.
While Norway’s December Unemployment Rate showed an unexpected dip from 4.6% to 4.5% the Krone was weakened by a renewed slump in oil prices, as market optimism struggled to maintain itself amidst the persistent global oil supply glut.
On Thursday the Pound is expected to weaken once again as the fourth quarter UK GDP is forecast to see a downwards revision from 2.1% to 1.9%, boding ill for the continued economic health of the country.