UK GDP Hits 5-Year Low – Pound Norwegian Krone (GBP/NOK) Exchange Rate Sees Sharp Decline
The Pound Norwegian Krone (GBP/NOK) exchange rate ended the week on a sour note, tumbling as markets reacted to a steep decline in the UK’s Q1 2018 GDP estimate.
According to the Office for National Statistics (ONS), Q1 economic growth in the UK slipped to 0.1%, well down from the forecast of 0.3% and the previous period’s core of 0.4%.
The year-on-year reading also disappointed, falling from 1.4% to 1.2%.
This sub-par result was largely driven by the -3.3% contraction in the UK’s construction sector, though service sector growth also remained rather weak at 0.3%.
Minor dips are a regular trend at the start of the year for major economies, but this fall was substantial enough for markets to grow concerned about how the Bank of England (BoE) may react, particularly with the looming rate decision next month.
Indeed, bank Governor Mark Carney could now delay raising the UK’s benchmark interest rate, particularly with inflation printing below expectations.
If this occurs then Sterling could see extended pressure.
Norwegian Krone (NOK) Exchange Rates Supported by fall in Unemployment Rate
The Norwegian Krone (NOK) found support today on the back of a sizable fall in their seasonally adjusted unemployment rate.
The unemployment rate fell to 3.9% in the three months to March 2018, down from 4.1% in the previous period and beyond the market forecast of 4%.
This was the lowest jobless rate recorded since 2015, with the number of unemployed falling by 4,000 from the previous period, and the number of employed rising by 21,000.
This news, combined with recent hawkish outlook of the Norwegian central bank and higher oil prices, bolstered the Norwegian Krone, though ultimately these drivers remained secondary to the UK’s GDP result.
Pound Norwegian Krone (GBP/NOK) Exchange Rate Forecast: Norges Bank Rates Expected to Remain on Hold
The Pound Norwegian Krone (GBP/NOK) exchange rate could see greater volatility next week, depending on the outcome of Norway’s central bank (Norges Bank) rate decision.
Markets currently expect the bank to keep its key policy interest rate at the record low of 0.50% on this occasion, but many also expect them to signal a shift towards tighter monetary policy around September.
This would be a re-iteration of comments in March, with the central bank previously asserting that its benchmark interest rate would begin to rise after summer has passed.
SEB Economist Erica Blomgren shared her thoughts on rate hike prospects:
‘Strong growth and rising capacity utilization suggest that the need for very accommodative monetary policy has diminished. Inflation remains subdued, but the bank has proven to overlook short-term volatility in inflation and instead focusing on the long term trajectory.’
This outlook could extend the Pound’s fall against the Norwegian Krone.