Krone Weakens Sharply: Insights on the Complex Market and Factors Affecting Its Exchange Rate

The krone weakened sharply on Thursday afternoon. Analysts believe the reason is complex, and that a nervous market is hardly good for the krone.

On Thursday afternoon, both the euro rose and the dollar strengthened against the krone after Oslo Børs closed.

At 6 p.m., a dollar now costs almost NOK 10.7, while a euro costs a whopping NOK 11.6. Five hours earlier, a dollar cost NOK 10.5 and a euro NOK 11.5.

And this is how the development has been over time. If you go back three months, a dollar cost NOK 10, and a euro cost NOK 11. Three years ago, it was “only” NOK 8.2 for a dollar, and NOK 10 for a euro.

The krone has strengthened somewhat since Norges Bank’s interest rate decision last week, where central bank governor Ida Wolden Bache clearly signaled that interest rates would rise. Nevertheless, there is a weakening after a steep fall in oil prices throughout Thursday.

Weakens in line with the oil price

In the last few hours, there have been major impacts, but it can be difficult to be absolutely sure what is the cause of movements within one and the same day, says the currency strategist.

– It is difficult to diagnose this intraday. I think there are several things behind it, says Dane Cekov in Nordea.

The krone has weakened steadily since the turn of the year. This has previously been explained by the fact that the krone is a small currency, and that investors in uncertain times gravitate to safe havens, such as the dollar.

Norges Bank has also had high krone sales as a result of the abnormally large gas revenues last year. This has contributed to a short-term weakening, several analysts believe.

To understand today’s weakness, Cekov believes we need to look at the price of oil, which at 5:30 p.m. has weakened by three dollars since midnight.

Bankuro still plays a role

Furthermore, he believes the situation in the USA has had an effect. Several regional banks fall on Wall Street after weak results.

– You can see that there is a sour mood on the stock exchange, and the regional banking noise continues. There was also a slightly higher number of job seekers than expected, says Cekov, referring to the so-called job claims that came in on Thursday morning.

The number of first-time applicants for unemployment benefits in the USA (jobless claims) was 264,000 people last week, according to statistics from the US Department of Labor. In advance, the number of first-time applicants was expected to be 245,000 people, according to the consensus forecast from Trading Economics.

The recent figures affect the financial markets to a large extent because they measure new and emerging unemployment.

Still bad holiday prospects

Cekov also introduces a third factor, which he himself is unsure whether has a major impact on the krone exchange rate.

– Today’s state budget actually shows that Norges Bank will probably sell a higher number of kroner than we and others had expected.

The government today presented a revised national budget. There it emerged that the government will increase the use of oil money by NOK 56 billion, which means that a total of NOK 373 billion will be used to cover gaps in the state budget.

– It may be that they reduce krone sales a little, but we think they will be kept at one billion a day from 1 June, says Cekov.

When krone sales are high, you run the risk of weakening the krone.

Cekov is nevertheless skeptical about how big an effect this would have had.

– I think the weakening has more to do with developments in the financial market. But cannot ignore the fact that companies have been told that krone sales have remained high, he says.

It is known from the past that Norwegians who are going on holiday must expect that the trip to the south this summer will be far more expensive than usual. Dagens Nyheter means that you still have to factor a few fewer trips to the beach bar into the budget.

– The most likely thing is that the krone will only become less weak towards the end of the year, but unfortunately it will probably remain at a low level towards and over the summer, says the strategist.