(The newspaper online) The crown is greatly weakened. The price of one euro is 11.456 NOK on Friday afternoon. It is by far the weakest level in a month. At the same time on Thursday, the euro stood at 11.176 NOK.
So it’s bad news for Norwegians who are planning a belated southern holiday in euro countries like Greece, Spain and Italy.
Nordea Markets chief strategist Dane Cekov explains the decline marked by a delayed reaction from Thursday’s inflation numbers.
– After yesterday’s inflation figures, interest rate expectations in Norway have fallen. The underlying rate increase was slightly higher than the Bank of Norway envisioned, but the overall rate was lower, it says.
The Bank of Norway sets interest rates to lower core inflation towards a target of 2 percent. Thursday’s July result showed annual growth of 6.4 percent, the same as expected by experts. The Bank of Norway expected 6.3 percent. In June, the annual growth was a whopping 7 percent.
– In line with these figures, most banks said they did not believe in any double-digit increase, Nordea Markets said so for a long time. Now the market has also received the message.
common market
Cekov explains that the market was already split 50/50 on whether there will be a so-called single or double rate hike next week.
– According to the numbers, there will be no coin toss, and therefore I think that the krone exchange rate has weakened.
He went on to say that it was a bit surprising that the reaction came today rather than yesterday, but there was more news that affected the market:
European gas prices jumped 40 percent, after three large production facilities in Australia were threatened with a strike. They account for about ten percent of the world’s export volume.
It is not that Europe is the main recipient of gas from Australia. DNB Markets wrote in its morning report Thursday that some analysts believe the price jump shows that the market is still very sensitive to changes in gas supplies, at the same time that global competition is getting tougher.
Chekhov says there is more focus today on Norwegian interest rates.
– But why do inflation and interest rates affect the krone exchange rate?
Chekhov explains that the interest rate differential compared to foreign countries is an important driver, in addition to energy prices and developments in the stock market.
The interest spread is the difference between comparable loans, which are denominated in different currencies. One example is variations in the 3-month money market interest rate or the 10-year government interest rates.
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several years to less than ten crowns in euros
The chief strategist does not believe in significant weakness in the short term.
– It will be around NOK 11.50 per euro in the coming period, with fluctuations depending on the sentiment in the market.
– When do you think we will see the euro below ten crowns again?
It may take between three to five years. He says we don’t have in sight our projections for the next few years, it could take too long.
Cekov points to at least four factors that need to be in place for this to happen:
– First, the problem of inflation must disappear globally. Hence interest rates abroad should fall faster than they do in Norway, and the outlook for the global economy looks much brighter than it does today. At the same time, energy prices should be higher.
Maybe in three to five years. I don’t think it will happen next year, just forget it.
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