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What's next for Norway's weak krone after latest slump?

Frazer Norwell
Frazer Norwell - [email protected]
What's next for Norway's weak krone after latest slump?
Norway's weak krone suffered a fresh slump this week. The downturn isn't expected to be short lived. Pictured is a 1,000 kroner note. Press photo/ Norges Bank

The Norwegian krone has slipped down towards yearly lows against several major currencies. The downturn isn't expected to be short-lived.

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Norway's ailing krone has slipped against the dollar, euro and pound once again. A euro cost 12 kroner, a pound traded for 13.77 kroner, and a dollar went for 11.22 kroner on Wednesday morning.

The fresh slump means the krone is approaching similar levels to its yearly lows against the other major currencies seen in May.

Analysts have said the slump is expected to last for the foreseeable short-term future.

"I believe that the krone can stay at today's weak level, and potentially weaker as well," Olav Chen, head of allocation and global interest at savings and insurance firm Storebrand, said to business and financial site E24.

Chen said that the weak krone will impact the cost of living and interest rates in the country.

"I am very concerned about the krone exchange rate because it has a direct effect on inflation six to nine months ahead. See everything around you. The car I'm sitting in, the phone we're talking on, the headset, the coffee I'm holding in my hand. Everything is bought from abroad," Chen said.

Currency strategist at Nordea Dane Cekov said that the krone was much more affected by bad news than it was by good news.

"It has been on the cards for the past few weeks. It seems that good news does not affect the krone exchange rate, while bad news does. Interest rates abroad have fallen a lot, and the stock market is good," he said in a different interview with E24.

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"But it seems more like the drop in oil prices is in focus in the market, and not the good sentiment. I don't quite know why that is. This makes me scratch my head a bit," he added.

Bank Handelsbanken expects the krone to pick up slightly and strengthen into 2025. However, even when the Norwegian krone would not return to previous levels. Nils K. Knudsen, currency strategist at Handelsbanken, said that this signalled a long-term devaluation of the krone.

"We don't really believe that we will return to previous levels," he said.

In the shorter term, the krone may fluctuate depending on the latest inflation figures released later this week.

"The inflation figures for October, due on Friday, can lead to quite large fluctuations. Both in expectations of what Norges Bank will do in December, but also for the krone exchange rate," Knudsen said.

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Higher inflation than forecasted may lead to the central bank deciding to raise interest rates beyond the predicted peak. This, in turn, could strengthen the krone. Lower inflation than forecast could mean that the bank decides not to raise hikes, which would weaken the krone.

The bank could also follow its current course and raise rates once more to 4.5 percent, as it has said it would several times.

The weakening may also be explained by seasonal effects, according to Cekov.

"The krone exchange rate tends to weaken towards the end of the year, often because many professional investors do not want to sit on krone risk over the New Year because it can be expensive. It is a hopeless period for the krone exchange rate. The krone has lost much of its value," he said.

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