– We will struggle to get a stable and somewhat stronger krone without an interest rate cut in the US, says senior strategist Dane Cekov.
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The summer heat has taken over much of the country, but the krone trend is bad news for those who have started to look forward to a holiday in the south. Since the new year, the euro and the dollar have only become more and more expensive.
In recent days, the Norwegian krone has been at its weakest in 2024 against both important currencies. It is more expensive than before the interest rate hike by Norges Bank in December, which helped to strengthen the krone.
A lot is about the US and the dollar, says senior strategist Dane Cekov at Nordea Markets. He explains that it is often seen that the krone moves equally against both the euro and the dollar.
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– It is the dollar that has strengthened broadly, also against the krone. It is linked to the strong macro figures from the USA. Fed FedThe US central bank, the Federal Reserve, is often abbreviated to the Fed have not become confident that inflation will come down.
The most expensive of the year
The euro cost NOK 11.87 at its most expensive on Thursday. It is the highest since mid-November last year.
The dollar passed NOK 11 earlier in April, and the rate of around NOK 11.1 in recent days has not been seen since November either.
The krone exchange rate is also weaker than Norges Bank had envisaged.
The import-weighted exchange rate index I-44, where the euro weighs by far the heaviest, was up to 122 points on Tuesday. The higher the number on the index, the weaker the krone. The central bank’s estimate is that it will be 119 points on average in the second quarter.
– I think the krone will remain on the weak side this summer, says Cekov.
“Demanding balancing act” for Norges Bank
The krone exchange rate is important for Norges Bank and the setting of interest rates. Among other things, this is about the fact that a weak krone exchange rate makes imported goods more expensive, thereby affecting price growth.
Norges Bank will issue a new interest rate decision on Friday, where no change is expected. It is a so-called intermediate meeting, where there will be no new forecasts for the interest rate or the economy.
Norges Bank has signaled that interest rates will remain at their current level until the autumn, and central bank governor Ida Wolden Bache said in March that the most likely rate cut is in September.
Several economists have recently cast doubt on whether the interest rate cuts will come so quickly, including Nordea Markets and DNB Markets.
Cekov does not expect that there will be any clear new signals about the interest rate going forward, since the central bank “cannot come to any new conclusion” when there are no new forecasts. But it can be a challenge in terms of the krone.
– If they do not hint that the interest rate path is out of date, the currency market may be disappointed by that. In this sense, the balancing act is a bit demanding for Norges Bank.
Less faith in interest rate cuts
At the same time, the krone exchange rate is also affected by interest rates and interest rate expectations abroad. Basically, it is most attractive to place money where the interest rate is high.
– We will struggle to get a stable and somewhat stronger krone without an interest rate cut in the US, Cekov believes.
Faith in interest rate cuts both here at home and abroad has fallen like a stone in recent months. This is the most important reason why the krone has weakened in recent months, believes Cekov, who points out that “the USA dominates”.
Around the New Year, the market priced in as many as six interest rate cuts in 2024. Now the market pricing indicates that there will be one or two cuts in the US this year, and that the first cut may have to wait until November.
It is linked to economic development. Inflation in the US has started to climb a bit again recently, while the labor market and the economy remain strong. The US central bank pointed out in Wednesday’s interest rate decision that there has been a lack of progress towards the inflation target.
In the eurozone, it is expected that the first interest rate cut from the European Central Bank (ESB) will come in June, and the market is pricing in that there could potentially be three cuts in total this year.
