The week got off to a rather weak start for the Norwegian Krone thanks to a stronger-than-expected March Unemployment Rate. Markets had predicted unemployment of 4.6%, but were ultimately disappointed to find that the rate was instead in line with the upward revision of the February figure at 4.7%. This naturally offered little reassurance in the outlook of the domestic economy, suggesting that economic conditions were in fact softer than previously assumed.
However, the GBP/NOK exchange rate struggled to capitalise on this weakness thanks to a lack of UK data on the May bank holiday. The Pound was also sharply dented on Tuesday by the news that the ‘Leave’ campaign had pulled ahead of ‘Remain’ in the latest ICM telephone poll. This was particularly notable thanks to the greater confidence placed in telephone surveys over those carried out online and the fact that ‘Remain’ had previously tended to dominate this particular measure. Consequently ‘Brexit’-based uncertainty saw a strong surge, weakening Sterling across the board.
GBP/NOK Exchange Rate Hit by Increased ‘Brexit’ Worries
Some greater measure of confidence returned to the Krone as Norwegian Loan Growth was found to have accelerated unexpectedly on the year in April. Demand for the currency was also driven up by bullish oil prices, as Brent crude continued to trend around the psychologically important $50 per barrel mark at the start of the week.
Demand for the Pound weakened further on Wednesday in response to the latest Nationwide House Price Survey, which showed that growth in house prices had slowed further than anticipated on the year. Clocking in at 4.7% rather than 4.8% this report raised concerns that the UK economy is experiencing a more pronounced slowdown. With the housing market showing signs of cooling, at least slightly, there was little reason for investors to support the GBP/NOK exchange rate which consequently slumped to a fortnightly low of 11.9504.
Confidence in the Krone, meanwhile, saw a sharp boost as the May Manufacturing PMI surprised investors by returning to expansion territory. Strongly bettering expectations the measure came in at 51.1 rather than 48.5, signalling a return to growth for the domestic manufacturing sector. This bullish result certainly boded well for the Norwegian economy, somewhat easing fears over the impact of negative global headwinds and recent oil volatility.
Lack of OPEC Agreement Dented Krone Demand
The GBP/NOK currency pair returned to an uptrend on Thursday, however, as risk appetite declined. Markets were relatively jittery ahead of the latest of the Organisation of the Petroleum Exporting Countries’ (OPEC) bi-annual meetings, with the price of oil returning to a downside bias. While there were no particular expectations for members to agree any measures to curb high levels of output there was still decided disappointment amongst investors when agreement inevitably failed to materialise. As a result Brent crude broke back below $48 per barrel, dragging the Krone lower against rivals.
Although the latest UK Construction PMI showed a slight weakening on the month this failed to prevent the rebound of the Pound. While the index slowed from 52.0 to 51.2 in May Sterling was bolstered by the news that a YOUGOV poll had placed the ‘Leave’ and ‘Remain’ camps on an equal footing. With referendum uncertainty at least temporarily eased this saw the GBP/NOK exchange rate trending higher in the region of 12.0146.
Sentiment towards higher-risk assets such as the Krone could weakened further ahead of the weekend in response to the US Non-Farm Payrolls report. Any signs of stronger employment and wage growth is likely to encourage further bets on the likelihood of the Federal Reserve raising interest rates in June. A stronger US Dollar would add downside pressure to oil, and the Krone by extension, which could offer further support to the GBP/NOK currency pair.