Signals of September Interest Rate Hike from Norges Bank Knock Pound to Norwegian Krone (GBP/NOK)
Despite a surprising number of Bank of England (BoE) policymakers voting to hike rates immediately in June’s policy decision meeting, the Pound Sterling to Norwegian Krone (GBP/NOK) exchange rate has tumbled throughout the week.
Its losses have been largely due to a more confident sounding Norges Bank, causing markets to bet that Norway’s monetary policy will tighten at a faster pace than other major central banks – such as the European Central Bank (ECB).
After opening this week at the interbank level of 10.81, GBP/NOK failed to sustain any gains. While it has recovered from Thursday morning’s low of 10.69, GBP/NOK was still trending lower, near the level of 10.75, at the time of writing.
Thursday saw both the Bank of England (BoE) and Norges Bank hold June monetary policy decisions. While both banks were more hawkish than expected, the Norges Bank’s stance was more surprising and led to a broad surge of NOK demand.
Pound (GBP) Exchange Rates Bolstered by Signs of Hawkishness from Bank of England (BoE)
Following weeks of poor performance on economic uncertainties and Brexit jitters, the Pound (GBP) saw a surge in demand on Thursday as investors digested a relatively surprising policy decision from the Bank of England (BoE).
While the BoE ultimately voted to leave UK monetary policy frozen as expected, more members of the Monetary Policy Committee (MPC) than expected voted for hike rates in June.
Economists expected only two of the bank’s most hawkish members to vote for an immediate hike in rates, but instead, policymaker Andy Haldane joined their ranks and voted to hike rates too.
Haldane argued that Britain’s economic growth had rebounded from the poor performance seen over winter.
His change of heart indicated that BoE officials were not particularly concerned about Britain’s slowing price pressures in recent months. According to Stephen Gallo, FX Strategist at BMO Financial Group:
‘The message is clear: the BoE is not shifting off a normalisation path so don’t get too bearish on the Pound,’
Bets of an August interest rate hike from the BoE instantly rose and this gave Sterling a boost – but the Norges Bank was even more hawkish in comparison.
Norwegian Krone (NOK) Exchange Rates Surge as Norges Bank Signals Rate Hike
Laying it out explicitly, the Norges Bank stated that ‘the key policy rate will most likely be raised in September 2018’ during its June policy decision meeting.
On top of this, the bank’s current interest rate path indicates that there is the possibility for another interest rate hike in December, with markets increasingly betting on two rate hikes per year from 2019-2021.
The solid news of Norges Bank positive outlook was more than enough to lead to a surge in demand for the Norwegian Krone this week.
Among the reasons for the expected rate hike path were the weaker Norwegian Krone (NOK) versus the US Dollar (USD) this year, as well as stronger oil commodity prices.
As the Norwegian Krone (NOK) is typically correlated to oil prices, rising oil and Norges Bank hawkishness has left the Krone looking more appealing this week.
Pound to Norwegian Krone (GBP/NOK) Forecast: Major Ecostats Next Friday
Next week’s economic calendar won’t be quite as influential, but some major ecostats due for publication on Friday are still likely to have an impact on the Pound to Norwegian Krone (GBP/NOK) if they surprise.
Norwegian job market stats will be published throughout the week, with the nation’s April unemployment rate coming in on Wednesday and the current claimant rate print due on Friday.
Norway’s May retail sales results will be published on Friday too, but Friday’s most influential ecostats will be Britain’s final Q1 Gross Domestic Product (GDP) results.
Expectations that UK growth was poor in Q1 2017 have been among the primary reasons for Pound weakness lately, so if the UK growth rates beat forecasts, the Pound (GBP) could see stronger demand at the end of next week.
Of course, with both the Pound and Norwegian Krone (NOK) benefitting from Central Bank developments in the past week, the Pound to Norwegian Krone (GBP/NOK) exchange rate could also see some mixed movement.