Confidence in the health of the Norwegian economy was boosted as a result of January’s industrial production figures, which surprised significantly to the upside on both the month and the year. Of particular note was the 3.4% rise on the month, as this more than reversed December’s -2.7% slump. As a result the Norwegian Krone was encouraged to trend higher against its rivals, despite ongoing worries over rising US oil production and its negative implications for the persistent global oversupply glut.
Chancellor Philip Hammond’s Spring Budget did not do much to boost the appeal of the Pound, meanwhile. Investors were discouraged to find that the Office for Budgetary Responsibility has revised its wage growth forecast lower for the coming year, indicating that the squeeze on consumer incomes is likely to be more severe than anticipated. This would not bode well for the ongoing resilience of the UK economy, given that much of its recent strength has been supported by high levels of consumer spending.
Further support for the Krone came in the form of February’s Norwegian inflation data, with inflationary pressure falling back to 2.5% on the year. This put the measure back in line with the Norges Bank’s target, giving policymakers further incentive to maintain a neutral outlook on monetary policy. However, with risk appetite beginning to wane ahead of the weekend the GBP NOK exchange rate was soon able to rally.
Although markets had already priced in high odds of the Federal Reserve raising interest rates at its March policy meeting the latest non-farm payrolls report nevertheless caused a stir. As the 235,000 new jobs added to the economy was substantially higher than the 200,000 forecast this was seen to confirm an imminent rate hike. Thus, the Krone slumped sharply on Friday, with investors once again piling out of the higher-risk currency.
Brexit Developments Provoke Pound Volatility
The GBP NOK exchange rate maintained its bullish form on Monday, thanks to expectations that the House of Commons would reject the Lords’ amendments to the Article 50 bill. With the threat of parliamentary ping-pong having receded this signalled a greater sense of certainty for the Pound. As Theresa May’s Brexit timetable remained on track this helped to push Sterling higher across the board, despite the lack of clarity over what any final Brexit deal will look like.
However, after Scottish First Minister Nicola Sturgeon announced her intention to pursue a second independence referendum the optimistic mood towards the Pound faltered. The move offered a timely reminder to markets that an element of political and economic uncertainty will still hang over Sterling for the next two years. As a result, with supportive domestic data lacking, the GBP NOK exchange rate soon began to cede some of its recent gains.
Norges Bank and BoE Meetings in Focus for GBP NOK
Central bank policy meetings are likely to dominate the outlook of both the Pound and the Krone throughout the course of the week. More hawkish commentary from the Fed and any signals that it intends to pursue a more aggressive pace of monetary tightening could weigh heavily on the risk-sensitive Krone. A bullish US Dollar would not ease oil price anxieties and could encourage the Norges Bank to adopt a more cautious view in turn.
On the other hand, Sterling may struggle to find any particular support if the Bank of England (BoE) disappoints. Given recent signs of weakness within the economy it seems unlikely that the BoE will move away from its current neutral policy bias. If January’s raft of UK labour market data fails to impress, particularly with regards to wage growth, policymakers may even express a slightly more dovish outlook. Either way, the GBP NOK exchange rate looks set to retreat further from its recent highs.