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Why Norway's weak krone has dropped sharply against other currencies

Frazer Norwell
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Why Norway's weak krone has dropped sharply against other currencies
One euro cost 12 kroner on Wednesday. Pictured is a person holding Euro notes. Photo by Christian Dubovan on Unsplash

The Norwegian krone's dip against other major currencies approached yearly lows on Wednesday. The drop is expected to continue in the short term, with some new factors behind the latest downturn.


The beginning of this week has seen a fresh slump for the Norwegian krone, with it falling against the euro, pound and dollar. 

A euro cost 12 kroner, a pound traded for 13.77 kroner, and a dollar went for 11.22 kroner on Wednesday morning.

A fresh slump meant the Norwegian krone approached yearly lows, which were recorded in May. 

Experts have warned that the current slump may not be short-lived and may signal a long-term devaluation of the krone. 

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

Currency strategist at Nordea, Dane Cekov, said the effects of negative news had a greater impact on the currency's strength than recent positive developments. 

"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," Cekov said to business news publication E24

"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.

Previously, an interest rate differential had been pointed to as one of the factors as to why Norway's krone was performing so poorly. 

However, since the summer, Norway's central bank has raised the key policy rate and reduced or reversed the differential, and the key policy rate is now higher in Norway than in other markets. 

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

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


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.

Certain factors which were behind a weak krone earlier this year, such as falling oil prices, are also at play in the current dip.

"The recent weakening of the krone can probably be seen in the light of increased uncertainty surrounding the strength of the global economy, which has once again contributed to the oil price falling by more than ten dollars per barrel in the last roughly two weeks," Knudsen said in a daily report. 

Norway's economy is based on selling commodities like oil and gas. Therefore, as prices of oil and gas fall, so does the krone (generally). 


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