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Why Norway’s krone will struggle over the summer 

Frazer Norwell
Frazer Norwell - [email protected]
Why Norway’s krone will struggle over the summer 
Norway's krone will remain weak throughout the summer, analysts have warned. Pictured are US dollars and euros spread on a table. Photo by Ibrahim Boran on Unsplash

Norway’s central bank has announced a cut in the volume of Norwegian kroner it will sell. However, analysts warn that the krone will continue struggling throughout the summer. 

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Norway’s central bank, Norges Bank, has announced that it will cut sales of the Norwegian krone by some 100 million per day during June. 

This is money that is traded so that foreign currency can be transferred to the Government Pension Fund (or oil fund), rather than it being a means of currency intervention (the central bank trading money to influence the exchange rate).

After the announcement, one euro continued to cost 12.01 kroner, and a dollar was trading for 11.26 after the announcement. Meanwhile, a pound was worth 13.93 kroner on Wednesday. 

The market had expected a much larger cut in krone sales. High krone sales are seen as a factor behind the weak krone

“The market reactions indicate that some expected an even greater downward adjustment. So the difference between 1.4 and 1.3 is marginal,” DNB’s currency strategist, Magne Østnor, told Norwegian broadcaster TV 2

Several analysts expect the Norwegian krone to continue to struggle, arguing that krone sales aren’t the most significant influence on the struggling currency. 

“A cut from 1.4 billion to 1.3 billion could hardly be smaller. In this sense, it will mean nothing for the krone, and the dynamics will not change much. The krone sale is not the most driving factor for the krone exchange rate as of now,” Østnor told business and financial publication E24 in a different interview. 

Dane Cekov, an analyst with Nordea, told E24 that the krone’s struggles would continue in the coming months. 

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“We believe that the roller coaster ride will continue for the Norwegian krone through the summer,” Cekov said. 

The analyst predicted that one euro could cost as much as 12.3 kroner, or more, during summer. 

Nils Knudsen, the currency strategist from Handelsbanken, told TV 2 that the krone would continue to trade weakly against other major currencies until the global economy picks up. 

“It is connected with the fact that we have not received any particularly good news from the global economy. Therefore, we need to have some good news before we can say that the krone can recover in the short term,” he explained. 

The reason for this is that the krone isn’t tied to another major currency like the euro, and the central bank doesn’t directly intervene in the market to try and boost the krone. This makes the krone more liable to devaluation during times of uncertainty. 

Another factor which has contributed to the weak krone, interest rates, will continue to keep it weak against other major currencies in the future. For example, in Norway, the interest rate is 3.25 percent, compared to 5-5.25 percent in the US and 3.75 percent in the eurozone. 

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“You might have thought that the American central bank had finished raising interest rates. But it could be that it is not and will not cut the interest rate as much as was previously expected,” Østnor told TV 2. 

Therefore, the krone may only improve once the interest gap between Norway and other countries shrinks. 

Marius Gonsholt Hov, the chief economist at Handelsbanken, predicts that the central bank will take the key policy rate up to four percent this year. 

“Thus, we cannot escape the fact that the weak krone contributes significantly to raising the interest rate outlook here at home. At the time of writing, the market is on the verge of a key interest rate peak of a whopping four per cent in the autumn,” Hov said. 

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