Will the weak Norwegian krone recover in 2024?
The Norwegian krone's exchange rate is more than just a number on a screen as it directly impacts the cost of living in Norway, among other things. Does the future look brighter for the krone after a miserable year?
For quite some time, the Norwegian krone's weakness has raised eyebrows.
The situation goes beyond the inconvenience of expensive foreign holidays; it has far-reaching implications for the country's economic landscape, influencing everything from interest rates to inflation.
READ MORE: What’s next for Norway’s weak krone after latest slump?
Norwegian currency strategists and financial experts have been closely monitoring the krone's performance, as its exchange rate plays a crucial role in shaping the nation's economic policies and consumer experiences.
But what should consumers expect in the year ahead, as 2023 slowly draws to an end?
The krone and interest rates
Interest rates are closely linked to foreign exchange rates, as higher interest rates generally make a currency more attractive to investors - when investors can earn more interest on their deposits or investments in one currency compared to another, they are often attracted to the higher-yielding currency.
In recent months, Norway's central bank, Norges Bank, has raised interest rates to a level surpassing that of the European Central Bank (ECB).
However, despite this move, the krone's exchange rate has not strengthened as much as expected.
READ MORE: Why Norway’s weak krone has dropped sharply against other currencies
After Norges Bank's interest rate hikes in June and September, the krone initially strengthened. However, a subsequent interest rate meeting hinted that the rate peak would be reached soon, leading to a shift in market sentiment.
This has somewhat dampened the impact of Norges Bank's previous actions.
The most recent inflation data, released in early November, has solidified analysts' expectations that Norges Bank will choose to implement another key interest rate hike in December.
The 2024 outlook
Over the past decade, currency markets have demonstrated their inherent unpredictability, and it's generally assumed that exchange rates fluctuate significantly.
Dane Cekov, a currency strategist at Nordea, told The Local that the time ahead will be characterised by high uncertainty and that the krone could easily weaken further.
"There's a high level of uncertainty, and the Norwegian krone could easily weaken further. This year's weakening was a surprise to many of us, so never say never…" Cekov said.
However, should interest rates come down abroad due to low inflation, the conditions might be good for the krone, the analyst noted.
"We're (Nordea) leaning towards a somewhat less weak Norwegian krone next year," Cekov said.
The best and worst-case scenarios
Nordea's currency analyst pointed out that, despite the fact that they're leaning towards a less week krone in 2024, they don't see much room for astronomical growth.
"When it comes to (growth) drivers, in the best case, inflation abroad will continue to come down, and central banks in Europe, the US, and abroad will reduce their rates, global activity will pick up, as will energy prices, and that would be good for the krone," Cekov told The Local.
He warned that the worst-case scenario would entail interest rates abroad growing further, coupled with a severe downturn in the global economy.
The real-life impact of the krone exchange rate
The Norwegian krone's exchange rate directly affects the lives of people living in Norway in various ways.
Generally speaking, a weaker krone makes imported goods more expensive, impacting the price level of everyday commodities in Norway.
Whether it's the car you drive or the phone you use, many of these items are imported to the country, and a weakened krone can drive up their prices.
READ MORE: Weak krone, soaring prices: Is Norway still an attractive country for foreign workers?
This phenomenon, in turn, contributes to inflationary pressures.
However, while experts and analysts offer insights and scenarios, the fate of the Norwegian krone in the coming year will be marked by unpredictability as it remains intertwined with a web of factors, from interest rates to inflation.
The next event to watch out for is the December meeting of Norges Bank, where the central bank will decide whether to increase its key interest rate further. You can find out what such a move could mean for consumers in Norway in The Local's deep dive on the issue.
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For quite some time, the Norwegian krone's weakness has raised eyebrows.
The situation goes beyond the inconvenience of expensive foreign holidays; it has far-reaching implications for the country's economic landscape, influencing everything from interest rates to inflation.
READ MORE: What’s next for Norway’s weak krone after latest slump?
Norwegian currency strategists and financial experts have been closely monitoring the krone's performance, as its exchange rate plays a crucial role in shaping the nation's economic policies and consumer experiences.
But what should consumers expect in the year ahead, as 2023 slowly draws to an end?
The krone and interest rates
Interest rates are closely linked to foreign exchange rates, as higher interest rates generally make a currency more attractive to investors - when investors can earn more interest on their deposits or investments in one currency compared to another, they are often attracted to the higher-yielding currency.
In recent months, Norway's central bank, Norges Bank, has raised interest rates to a level surpassing that of the European Central Bank (ECB).
However, despite this move, the krone's exchange rate has not strengthened as much as expected.
READ MORE: Why Norway’s weak krone has dropped sharply against other currencies
After Norges Bank's interest rate hikes in June and September, the krone initially strengthened. However, a subsequent interest rate meeting hinted that the rate peak would be reached soon, leading to a shift in market sentiment.
This has somewhat dampened the impact of Norges Bank's previous actions.
The most recent inflation data, released in early November, has solidified analysts' expectations that Norges Bank will choose to implement another key interest rate hike in December.
The 2024 outlook
Over the past decade, currency markets have demonstrated their inherent unpredictability, and it's generally assumed that exchange rates fluctuate significantly.
Dane Cekov, a currency strategist at Nordea, told The Local that the time ahead will be characterised by high uncertainty and that the krone could easily weaken further.
"There's a high level of uncertainty, and the Norwegian krone could easily weaken further. This year's weakening was a surprise to many of us, so never say never…" Cekov said.
However, should interest rates come down abroad due to low inflation, the conditions might be good for the krone, the analyst noted.
"We're (Nordea) leaning towards a somewhat less weak Norwegian krone next year," Cekov said.
The best and worst-case scenarios
Nordea's currency analyst pointed out that, despite the fact that they're leaning towards a less week krone in 2024, they don't see much room for astronomical growth.
"When it comes to (growth) drivers, in the best case, inflation abroad will continue to come down, and central banks in Europe, the US, and abroad will reduce their rates, global activity will pick up, as will energy prices, and that would be good for the krone," Cekov told The Local.
He warned that the worst-case scenario would entail interest rates abroad growing further, coupled with a severe downturn in the global economy.
The real-life impact of the krone exchange rate
The Norwegian krone's exchange rate directly affects the lives of people living in Norway in various ways.
Generally speaking, a weaker krone makes imported goods more expensive, impacting the price level of everyday commodities in Norway.
Whether it's the car you drive or the phone you use, many of these items are imported to the country, and a weakened krone can drive up their prices.
READ MORE: Weak krone, soaring prices: Is Norway still an attractive country for foreign workers?
This phenomenon, in turn, contributes to inflationary pressures.
However, while experts and analysts offer insights and scenarios, the fate of the Norwegian krone in the coming year will be marked by unpredictability as it remains intertwined with a web of factors, from interest rates to inflation.
The next event to watch out for is the December meeting of Norges Bank, where the central bank will decide whether to increase its key interest rate further. You can find out what such a move could mean for consumers in Norway in The Local's deep dive on the issue.
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