After reaching a new low at the end of May, the NOK has passed through wave valleys. However, at the end of June something happened – the krone strengthened.
He continues to do so.
And on Wednesday morning, the krone was at its strongest level since April against the dollar.
After the announcement of new inflation figures from the US, which were somewhat lower than expected, the krone strengthened against the greenback. Shortly after 2.30pm, the dollar was trading at NOK 10.20, compared to NOK 10.30 earlier in the day.
Thus, the dollar is now at its lowest level compared to the krone since February.
Currency strategist Niels Christian Knudsen at Handelsbanken points out that some of the recent strengthening of the krone is due to the good mood in the markets, as uncertainty surrounding inflation and interest rate peaks has eased.
As a result, the dollar weakened. He also explains that this is a sign that risk appetite is making its way back into the currency and stock markets.
Thanks to inflation
However, the krone has not only strengthened against the dollar in recent weeks. The price of the euro and the pound sterling fell by 40 euros, while the price of 100 Swedish krona is now 97 Norwegian kroner, compared to 101 kroner in June.
Knudsen believes that Monday’s strong inflation figures particularly contributed to the strengthening of the krone. The figures showed core inflation (CPI-JAE), which excludes energy products and tax changes, rose to a record 7 percent in June.
Inflation was surprisingly high, both for the market and for the Bank of Norway. This has led to a re-pricing in anticipation of the evolution of Norwegian interest rates. Norges Bank is now seen as more aggressive by the market, while it was previously seen as more conservative.
Markets expect Norges Bank to be more forward-looking than it announced in June and in its latest report. Knudsen believes this means the krone is better equipped to deal with any uncertainties in the market.
– I think what we’re seeing in Norway has so much weight that the krone will continue to work better now for a while than we used to.
Change of strategy in China
Recently, the Chinese authorities have gone from being somewhat passive to announcing more active measures to support the Chinese economy.
Knudsen believes this has led to higher oil prices, which is good news for the krone. So far this week, the price of North Sea oil is up 4.4 percent, and a barrel of Brent is trading at around $79.4 a barrel on Wednesday afternoon.
At the same time, oil production in Russia appears to be declining, after the country announced production cuts at the beginning of July.
It is likely that a combination of these factors is causing the price of oil to rise. There is also weight on the bowl, says Knudsen, which helps support the krone exchange rate. (conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We’d like you to share our statuses using links that lead directly to our pages. Reproduction or other use of all or part of the Content may be made only with written permission or as permitted by law. For more terms see here.
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