Up or down in 2023?

The Norwegian krone (NOK) is not as popular as the euro or the British pound among traders. However, it is a currency linked to one of the strongest European economies.

This article aims to inform you about the Norwegian krone, the country’s economy and share with you some forecasts from analysts.

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The Norwegian krone and Norges Bank

The Norwegian krone replaced the special daler in 1875. In late 1992, Norges Bank, Norway’s central bank, decided to abandon the fixed currency system in favor of floating exchange rates due to speculators’ attacks on the Norwegian currency. .

Norges Bank was established in 1816 and is one of the oldest central banks in Europe. The main purpose of Norway’s central bank is to promote financial stability. It also manages the Statens Pensionsfond, where surplus assets generated by Norwegian oil revenues are deposited. Monetary policy is Norges Bank’s most important instrument for stabilizing inflation and the development of the Norwegian economy.

The Norwegian krone against the euro

According to the Bank for International Settlements, the Norwegian krone is the fourteenth most traded currency in the world. The most popular pairs are the euro against the Norwegian krone and the US dollar against the NOK.

Source: MetaTrader 5 Admirals, EURNOK, MN Chart – Period: 1 April 2018 to 27 June 2023, accessed 27 June 2023.

Please note: Past performance is not a reliable indication of future performance.

The monthly chart shows that the Norwegian krone strengthened against the single currency between December 2021 and February 2022, reaching a two-year high at the start of the second month of 2022.

Source: MetaTrader 5 Admirals, EURNOK, Chart D1 – Period: 23 April 2023 to 27 June 2023, accessed 27 June 2023.

Please note: Past performance is not a reliable indication of future performance.

Since then, however, the koruna has lost ground against the euro, trading at DKK 11.85 (27 June) and becoming the worst performing G10 currency this year.

The Norwegian central bank raises interest rates to the highest level in 15 years

On June 22, Norway’s central bank raised interest rates to the highest level in 15 years, beating analysts’ expectations as it tries to combat inflationary pressures. Norges Bank’s board has hinted that a further interest rate increase in August may be on the way.

Ida Wolden Bache, director of Norges Bank, said that “if we do not raise the policy rate, prices and wages may continue to rise rapidly and inflation will take hold.”

When will Norges Bank stop raising interest rates?

Commenting on the Norwegian central bank’s decision, Nordea economists said that “today’s hawkish decision shows that Norges Bank is serious and concerned about stuck inflation. The decision is justified given that inflation has been significantly higher than expected. A weaker NOK and higher than expected wage growth worsens the outlook for inflation going forward The weak NOK also helps to keep the pressure on the ‘Norwegian economy’.

Market analysts TD Securities noted in a report that “Norges Bank accelerated the pace of its rate hikes by raising 50 basis points to 3.75% at today’s meeting. Building on the hawkish rise, the bank significantly raised its macroeconomic and interest rate projections today (22 June) ) decision is a strong statement from Norges Bank, clearly showing that it is prepared to do what is necessary to bring inflation back to its target level.In its report, the bank indicates that it expects two more increases of 25 basis points in August and September to reach a final rate of 4.25%, stressing that “while we consider the risks to be fairly balanced, uncertainty is high”.

A report from Danske Bank indicates that the euro may strengthen against the Norwegian krone in the coming months. “In the short term, the Norwegian krone will be very sensitive to news about the global investment environment, and the combination of weaker global sequential growth and tighter global liquidity conditions is rarely a good cocktail for the krone. We expect NB to revise its NOK Currency sales fell significantly in August, so we maintain a bullish profile for EUR/NOK in the coming months before considering a downward move if EUR strength fades and NOK makes a comeback in 2023,” they wrote in their report.

ING analysts point out that Norges Bank has become “hawkish” in its efforts to support the krone, indicating that further tightening may be on the way. In their report published on June 22, the Dutch bank’s economists note: “Not only did the central bank go further than that at this meeting, but it is now signaling a maximum interest rate of 4.25% later this year – around 60 basis points higher than previously expected. By historical standards, this is quite a significant revision. The Norwegian krone was up to 5.5% weaker at the end of May on a trade-weighted basis, compared to what the central bank assumed in March, although that gap has narrowed in recent days. This weakness also necessitates higher interest rates according to the bank’s model.”

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Norwegian krone trading and risk management

The Norwegian krone is one of the least popular currencies on the old continent. It may not be as important as the euro in the global financial market, or as stable as the Swiss franc, but it is the currency linked to one of Europe’s strongest economies.

Trading currency pairs involves risk, especially for beginners. It is not because the euro/Norwegian krone or US dollar/Norwegian krone pairs do not belong to the major pairs that there is less risk. Beginners should therefore study the forex market carefully, plan their moves in advance and proceed with caution when executing their strategies.

A thorough trading plan can help a novice trader get closer to their financial goals, but the use of risk management tools is essential for traders who want to build a comprehensive strategy. For example, risk management tools such as stop-loss orders can help beginners protect their money from unexpected fluctuations or bad decisions. Learning to use them is a matter of will, as there are many sources of educational content: webinars, detailed articles on how to use these tools.

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This content does not and should in no way be interpreted as containing investment advice or recommendations, an offer or a solicitation to trade in financial instruments. Please note that this marketing communication is not a reliable indicator of any current or future performance as circumstances may change over time. Before making any investment decision, you should seek the advice of independent financial advisors to ensure that you fully understand the risks involved.

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