Pound to Norwegian Krone Exchange Rate Slips from Weekly Best as Oil Prices Edge Higher
Despite broad uncertainties about the Brexit process and the stability of the UK government, the Pound Sterling to Norwegian Krone (GBP/NOK) exchange rate climbed earlier in the week. The pair only slid on Wednesday morning amid a weaker Norwegian Krone (NOK).
Since opening this week at the level of 10.83, GBP/NOK put in solid gains and touched on a weekly high of 10.98 on Tuesday evening.
GBP/NOK had recovered to above last week’s opening levels of 10.94 was despite last week’s Brexit chaos causing turmoil in the UK government. At the time of writing though, GBP/NOK was sliding and trended in the region of 10.93.
Demand for the Norwegian Krone finally strengthened a little on Wednesday following days of weakness, as prices of oil finally rebounded slightly from a recent selloff.
As oil is Norway’s most lucrative commodity, weaker oil prices have left the Norwegian Krone unappealing despite the Pound’s (GBP) Brexit jitters.
Pound (GBP) Exchange Rate Strength Weighed by Political and Economic Jitters
The Pound to Norwegian Krone exchange rate’s gains in recent sessions were more due to Norwegian Krone weakness than Sterling strength, as many UK political and economic factors are leaving the British currency highly volatile.
Investors have been hesitant to keep buying the Pound this week so far, making it easier for the Norwegian Krone to recover on Wednesday.
Since last week, concerns have soared that UK Prime Minister Theresa May will not be able to find enough support to pass her UK-EU Brexit agreement through UK Parliament.
While Prime Minister May is expected to survive a potential leadership challenge, which may not happen at all, concerns about the bill’s lack of support have persisted.
Northern Ireland’s Democratic Unionist Party (DUP), which had been propping up PM May’s minority government, indicated it would not support her Brexit bill either.
On top of persistent political jitters, the Pound was weighed further on Wednesday by a disappointing UK public sector net borrowing report. Analysts, such as ICAEW Public Sector Director Ross Campbell, noted that public finances depend on the Brexit outcome too:
‘We need to remember that if the Government is not able to get its deal with the EU through parliament then all such bets are off. In his budget speech, the Chancellor admitted as much. If the deal doesn’t get through then even if negotiations continue, it is more than likely that the budget will need to be revisited.’
Norwegian Krone (NOK) Exchange Rate Rises as Oil Prices Rebound from Lows
The Norwegian Krone has been weak in recent weeks, which limited Pound to Norwegian Krone exchange rate losses last week despite the Pound’s broad plummet on Brexit fears.
The primary reason for the Norwegian Krone’s recent weakness has been tumbling oil prices, in reaction to concerns that oil could be in for a global supply glut.
As oil is Norway’s most lucrative commodity, the commodity’s price plunges over the past week had left the oil-correlated Norwegian Krone falling too.
Oil prices rebounded slightly, by around 1% during Wednesday’s session. This helped the Norwegian Krone to claw back some losses too.
However, amid political uncertainties and predictions of an oil supply glut, analysts predict that oil prices may still have further to fall – making this a likely temporary reprieve.
On top of this, the Norwegian Krone has been unappealing due to weaker Norwegian core inflation in the past month.
While this is not expected to impact the Norges Bank’s interest rate hike plans significantly, the lower than expected inflation rate did limit the Krone’s appeal.
Pound to Norwegian Krone (GBP/NOK) Exchange Rate Investors Await Brexit Developments
The Pound’s volatility is likely to persist in the coming sessions amid a lack of notable UK data due for publication, as investors hotly anticipate developments in UK politics and the Brexit process.
UK Prime Minister Theresa May is expected to smoothly prepare the UK-EU Brexit deal for an emergency UK-EU summit set for the 25th – this upcoming Sunday.
While no major developments in the details of the Brexit deal are likely to change in the coming days, Prime Minister May’s domestic support remains a key factor for markets.
If investors become more concerned that PM May’s Brexit plan does not have the support it needs to pass through UK Parliament, the Pound is vulnerable to further losses.
This would make it easier for the Norwegian Krone to keep climbing and push GBP/NOK lower, in the event that investors continue to buy the Krone from its recent lows.
If oil prices continue to recover, this would continue to put pressure on the Pound to Norwegian Krone (GBP/NOK) exchange rate towards the end of the week.