Higher oil prices, reduced Omicron fears and accelerating inflation support the krone. In addition, the dollar is weakening.
The krona strengthened significantly against the dollar, but also against the euro, the British pound and the Swedish krona. This makes shopping from these countries cheaper, while foreigners have to pay more for Norwegian goods.
At the time of writing, the dollar is at 8.66 NOK, the lowest since mid-November. You’ll be up to 25 øre per dollar less than at the beginning of the week.
The krone has strengthened in parallel with the rise in oil prices. Since Monday, the price of North Sea oil has risen by more than four dollars, to close to 85 dollars a barrel. It is explained with Strong demand outlook and less fear of omicron, along with a narrow supply market.
Inflation and hawkish expectations
On the other hand, the dollar weakened according to the current inflation data, which showed a rise in prices of seven percent. This is the highest level since 1982, but is in line with economists’ expectations. Apart from that, higher inflation speaks in favor of higher interest rates, but this is already well priced in the market.
The problem with the dollar is that the market already has very hawkish expectations (belief in higher interest rates, daily newspaper). for Fed policy this year. So, even if today’s inflation numbers are fiery, they only solidify what has already been set up for dollar and Federal Reserve policy, says analyst Joe Manimbo at Western Union Business Solutions. to Reuters.
US Federal Reserve Chairman (GER), Jerome Powell, assured by Tuesday that he will fight high inflation, and that interest rates will rise faster if necessary.
At the previous rate meeting, three increases in 2022 were indicated, but Fed Member James Bullard said in an interview with the Wall Street Journal that it is now likely with four.
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We expect to raise interest rates four times in Norway this year
Here too, interest rate expectations are rising after inflation has risen and the economy is growing better than expected. When Norges raised the interest rate to 0.5 per cent in December, they expected to raise rates three more times in 2022.
Meanwhile, it was announced that the interest rate would rise again in March to 0.75 percent, the third rise since the outbreak of the epidemic in March 2020.
Handelsbanken is among the brokerages that now see an increased risk of four increases in Norwegian interest rates this year, compared to three times previously, according to a recent analysis. The reason for this is that the omicron has caused a milder setback than expected, and inflation is accelerating.
Earlier today, it also emerged that growth in the mainland economy was stronger than expected.
Expectations of higher interest rates are considered positive for the krone exchange rate.
Rising stock markets is another factor supporting the krone exchange rate. When risk appetite increases, more people also dare to invest in a relatively small currency such as the Norwegian krone. On Wednesday, the Oslo Stock Exchange and the US Stock Exchange both rose.
Experts expect interest rates to rise four times this year after unexpectedly high inflation
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