UK Services Solid but Strong Oil Prices Keep Pound to Norwegian Krone Exchange Rate Pressured
The Pound to Norwegian Krone (GBP/NOK) exchange rate has fallen in recent sessions despite a solid UK services PMI from Markit.
Britain’s December services PMI was forecast to improve from 53.8 to 54.1, but instead rose to 54.2, indicating that the services sector ended 2017 on a high. This contrasted with weaker manufacturing and construction data earlier in the week.
Despite this result, analysts remained concerned about the outlook for Britain’s retail sector, particularly with so much Brexit uncertainty on the horizon. This weighed on the Pound (GBP).
The rising price of oil, Norway’s most lucrative commodity, has also pushed GBP/NOK lower.
Norwegian Krone (NOK) Exchange Rates Recovering Despite Norway Housing Slump
After hitting a yearly-low against the Pound (GBP) in December, the Norwegian Krone (NOK) has recovered somewhat from its lows due to the indication that Norges Bank could hike Norway’s interest rates more quickly than expected.
This, as well as news that oil prices had neared their best levels since 2015, has helped the Norwegian Krone perform more strongly in recent weeks.
However, some analysts have expressed concerns that extended losses in Norway house prices could dent the pace of economic recovery.
But others have argued that the downside movement in house prices will not be a long-term trend. According to Halfdan Fenwick Grangard from Svenska Handelsbanken;
‘… we do not share the view held by some that housing prices, in general, are in for a prolonged downturn. We expect housing prices to fall moderately over the next few quarters before levelling out.’
Slower UK Consumer Lending Dampens Pound (GBP) Exchange Rates
According to the Bank of England’s (BoE) latest consumer credit report, the pace at which UK consumers borrowed money slowed more than expected in November.
The bank’s report indicated that households were reining in spending towards the end of 2017.
Combined with concerns about the UK services outlook, the data seemed to suggest that Britain’s economy could continue slowing if households begin spending less.
With UK wage growth stagnant and inflation soaring since the Brexit vote, analysts have been concerned for some time that UK consumer activity - the backbone to economic output - could stutter.
Pound to Norwegian Krone (GBP/NOK) Exchange Rate Forecast: Brexit in Focus Again
UK Parliament is set to reconvene next week after the winter holiday break. As a result, Brexit developments are expected to enter the news again as the UK government prepares for the vital second phase of negotiations.
Brexit talks are currently set to resume in March and will include discussions on trade and a potential post-Brexit transitional deal.
However, with just a year between then and the current Brexit date of March 2019, investors are anxious that the UK government will not be able to reach a good deal in time.
Signs of confidence or unity within the UK government over plans for the second phase of negotiations could boost market appetite for the Pound.
Norway inflation data due for publication next Wednesday could also influence movement in the Pound to Norwegian Krone exchange rate.