– This came as a surprise to me, says Dane Cekov, chief strategist at Nordea Markets.
The Norwegian krone has been in free fall for the past six months.
There was a lot of uncertainty in Europe, the European Central Bank saw frequent and rapid interest rate hikes and the price of oil fell.
All of this probably had an impact on the fact that we had the weakest krone ever in the past six months.
But now we can see an improvement. Which, among other things, is positive for the Norwegians, who chose a late vacation this summer.
Because since May 30, the Norwegian krone has strengthened by about 7 percent against the euro. Then one euro costs 12 NOK.
– It’s still more expensive than last year
When Emily Christensen from Stavanger and her group of friends went on holiday to Italy, the exchange rate was €11.66. On Friday it dropped to 11.16.
– I followed the course a bit before we left. I felt a little nervous that it got so loud, but the fact that it’s now lower is a good thing. But she says it’s still more expensive than it was last year.
She and her friends are from Stavanger in one of the five towns of Cinque Terre on Friday. There they sat in a cafe and ordered an Aperol Spritz.
Because even though it’s still very expensive in Italy, the friends agree that if they’re on vacation, they’re on vacation.
– I think everyone in our group of friends agrees that we should have fun when we first go on holiday. But we’re not going to do the big bag shopping, she says.
Higher interest rates lead to a stronger krone
Since the last rate hike by Norges Bank, market participants in the interest rate market expect Norges Bank to raise the key rate to 4.5 percent by the new year.
This means according to Niels Christian Knudsen, interest rate and currency analyst at Handelsbanken, The signals from the Bank of Norway that inflation here at home is very high are seen as credible.
And that a higher rate of policy is required to reduce price inflation.
– Today’s situation means that expectations of another hike in the key interest rate here at home are boosting the krona, he saysP. Knudsen.
In addition, Knudsen points out that better sentiment in financial markets has so far contributed to NOK becoming more interesting to invest in.
– Perhaps on the grounds that many have seen the weakness of the krone as somewhat exaggerated, he believes.
It may also be cheaper to visit England in the fall. The price of the British pound has fallen from 13.78 to 12.81 since the end of May.
Waiting for the peak of interest rates in the United States
The US dollar has now fallen more than 11 percent, from NOK 11.18 on May 30 to less than NOK 10 on Thursday.
This is no coincidence, according to currency expert Knudsen at Handelsbanken.
The fact that the US dollar has weakened has to do with the fact that the peak of interest rates in the US is near. He says that lower-than-expected inflation in June has accelerated dollar weakness.
Nordea’s Dane Cekov explains the boost by the fact that inflation in the US and several other countries was lower than expected, while price growth in Norway was faster than expected.
– This means that expectations for an increase in interest rates abroad have stagnated, while in Norway expectations have increased.
In addition, he points out that the price of oil has soared in recent weeks, and that China is struggling to recover after reopening the country earlier this year, which boosted the krona.
And then it became much nicer to be a Norwegian in Denmark. The Danish krone is now at NOK 1.50, compared to Krone 1.61 in May.
– Many are probably still not entirely sure what this will look like in the future. Where it is as weak as it is without major problems in the Norwegian economy, it has room for consolidation. It has done so, and it could also boost itself further, says Kyrre Knudsen, chief economist at Sparebank 1 SR-Bank.
Expect ups and downs
Cekov at Nordea and Knudsen at Handelsbanken predict that in the future we will see that the krone can fluctuate widely in value.
One reason for this is that moods and themes in the interest rate and currency markets are constantly changing.
The krona could still strengthen from today’s levels, but then maybe we’ll rely on financial markets eventually pricing in a lower probability of a U.S. downturn and global growth eventually picking up, he says.
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