Pound Norwegian Krone (GBP/NOK) Exchange Rate Plummets as Norway Lays ‘Groundwork’ for ‘Emergence From the Crisis’

May 12, 2020 - Written by John Cameron

STORY LINK Pound Norwegian Krone (GBP/NOK) Exchange Rate Plummets as Norway Lays ‘Groundwork’ for ‘Emergence From the Crisis’

Pound Sterling Norwegian Krone (GBP/NOK) Exchange Rate Falls by Over 1%

The Pound Sterling Norwegian Krone (GBP/NOK) exchange rate plummeted by around -1.3%, leaving the pairing trading at around 12.5313Kr.

Reports revealed that for the first time in more than a decade, Norway will exceed a self-imposed cap on spending from its sovereign wealth fund in an attempt to help the economy which has been battered by the coronavirus pandemic.

In a statement, the country’s finance ministry said:

‘The Norwegian economy has suffered its most severe setback ever in peacetime. However, the government is laying the groundwork for Norway’s emergence from the crisis.’

Meanwhile, data revealed that mainland Norway’s economy contracted by -2.1% in March, while growth in the first quarter shrunk by -6.9%.

This followed the ministry’s prediction the country’s economy would shrink by -4% before rebounding in 2021.

Oil Prices Buoy the Norwegian Krone (NOK)

Meanwhile, the Norwegian Krone was offered support after oil prices rose higher on Tuesday after a commitment from Saudi Arabia to deepen production cuts.

In order to help drain the supply glut built up by the coronavirus crisis, Saudi Arabia promised to deepen supply cuts by another 1 million barrels per day (bpd) from June.

Added to this, the United Arab Emirates and Kuwait also committed to cut an extra 180,000 bpd in total.

Commenting on this, SEB Bank’s chief commodities analyst, Bjarne Schieldrop noted:

‘The market is obviously far from certain that the additional cuts announced yesterday will be able to drive the oil price materially higher. But, today, the conclusion is that yes, the additional cuts are naturally positive on the margin.’

Sterling (GBP) Plummets as UK’s Lockdown Easing Plan Faces Criticism

The Pound suffered steep losses against the Norwegian Krone as markets were left confused after Britain’s government announced its plans to ease the coronavirus lockdown.

According to Rabobank’s head of FX strategy, Jane Foley:

‘From a political point of view in the UK, there really hasn’t been anything particularly positive and the criticism of the government is just highlighting a government which appears to be badly organised.’

Meanwhile, this afternoon, British Chancellor, Rishi Sunak announced that the UK’s furlough scheme would be extended to October.

The chancellor confirmed that employees would continue to receive 80% of their wages up to £2,500. Although, he noted the government will ask companies to ‘start sharing’ the cost of this from August.

Around a quarter of workers in the country are covered by the scheme, Sunak said the scheme would continue to support all sectors and regions but offered greater flexibility to support the transition back into work.

Employers will be able to bring furloughed employees back part-time. Speaking in Parliament, Rishi Sunak said:

‘I’m extending the scheme because I won't give up on the people who rely on it. Our message today is simple: we stood behind Britain's workers and businesses as we came into this crisis, and we will stand behind them as we come through the other side.’

Pound Norwegian Krone Outlook: GDP and Oil Prices in Focus

Looking ahead, the Pound (GBP) could suffer further losses against the Norwegian Krone (NOK) following the release of UK GDP data.

If data reveals that Britain’s economy has shrunk at a faster rate than expected, it will send Sterling lower.

Meanwhile, if oil prices continue to rise as market sentiment improves on promised oil production cuts.

If oil prices edge higher on Wednesday, it will send the Pound Norwegian Krone (GBP/NOK) exchange rate lower.

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