– A more suitable climate for krone – E24

– It's not just a blip, says the currency strategist.

There has been a long gap between good news for the Norwegian Krone in recent years.

In the two years before the beginning of May, the value of the krone fell against the euro and the dollar by 19 percent and 15 percent, respectively.

But in recent weeks, the trend has turned somewhat, and the krone has become about 30 euros stronger against the euro since May 1.

– We are in the fourth week, when the Corona was stronger. It's not just a passing blip, says currency strategist Nils Christian Knudsen at Handelsbanken to E24.

It points to the fact that financial conditions have improved globally and notes, among other things, that stock markets are performing better and that investors are more willing to take risks.

-High volatility is associated with a weak crown. This is a more suitable climate for krone, says Knudsen.

On Thursday, one euro is worth about 11.5 Norwegian kroner, 2 percent higher than three weeks ago.

– The average this year is about NOK 11.5. This is probably the most realistic level at which we are entering summer. We won't go any further than that, says the currency strategist.

The signals came from the United States

– I think the reason is simply the weakness of the dollar in recent weeks, and the decline in interest rate expectations slightly. A few weeks ago, there was speculation that the US central bank might raise interest rates again, says currency strategist Dane Sikov at Nordea Markets.

When it comes to the krone exchange rate, the interest rate differential is an important term: it refers to the difference in interest rates in different countries, which affects the country's exchange rate.

Increasing interest rates can make a country more attractive to investors because the return will be greater. This, in turn, increases demand for the currency and strengthens the exchange rate.

Therefore, US and European key interest rates are important for the Norwegian krone exchange rate.

At the previous interest rate meeting, held at the beginning of May, US Central Bank Governor Jerome Powell said that there was an unlikely scenario for any interest rate increase.

– Since then, things have improved a little for the krone. I think this is the main reason, because Norwegian interest rate expectations have fluctuated in line with US expectations. We have recently seen the Norwegian Krone at the mercy of US interest rate expectations and the dollar.

It is believed that this is the reason for strengthening the crown.

– When US interest rate expectations decline, when larger and faster interest rate cuts are expected, the value of the Norwegian krone strengthens – and vice versa.

Expect a reduction in December

After a strong January, Norway's mainland economy contracted by 0.3 percent in February and 0.2 percent in March.

The so-called import-weighted index, which largely weights the euro, is now roughly at the level Norges Bank assumed in the first quarter, Kerry Amdahl wrote in DNB Markets In his morning report on Thursday.

– Along with the slightly weaker development in economic activity in the past two months, the arguments for pushing through the expected interest rate cut have weakened slightly. We still believe the Norwegian central bank is likely to cut interest rates in December this year, he writes.

– Upbeat

Dane Sikhoff notes that economic development in the first quarter was influenced by strong growth in January, and that the quarter as a whole was stronger than the central bank expected.

The currency strategist says we have a long way to go towards Norges Bank's target of 2 per cent price growth over time, but he sees the Norwegian economy getting brighter and brighter in line with good weather in large parts of the country.

– Good real wage growth and better household financial situation are expected, even without rapid interest rate cuts. “So I am optimistic on behalf of the Norwegian economy,” he says.

The currency strategist points to neighboring Sweden, where the interest rate cut many had been waiting for came here at home this month. Sweden had lower inflation rates than Norway, but also had higher unemployment rates and lower wage growth.

– In Sweden, they need to lower interest rates for most people to get better, but in Norway most people will improve even without lowering interest rates. But here too, he says interest rate cuts will help.