Unexpected strengthening of the krone. Analysts point out the trend may reverse
The Norwegian krone is strengthening against the euro. The exchange rate has reached its highest level since the beginning of 2023. Rising energy prices and geopolitical tensions are in the background.
Higher commodity prices increase Norway's revenues.
Fot. Adobe Stock, licencja standardowa
At the beginning of the year, one euro cost 11.84 NOK. On March 17, the rate dropped to 11.07 NOK. This marks a clear strengthening of the krone. The changes coincide with rising oil and gas prices. The market is reacting to the development of the conflict involving the USA, Israel, and Iran.
Norwegian krone. Energy strengthens the currency
The rise in commodity prices increases the revenues of the energy sector. Oil has risen from $60 to over $100 per barrel. Gas in Europe is about twice as expensive as at the beginning of the year. Companies earn in foreign currencies. However, they pay taxes in NOK.
This increases demand for the Norwegian krone. Companies have to buy the local currency to settle with the state. Additionally, pressure from pension funds has decreased. Previously, they sold NOK due to currency hedging. According to analysts, this process is coming to an end.
This increases demand for the Norwegian krone. Companies have to buy the local currency to settle with the state. Additionally, pressure from pension funds has decreased. Previously, they sold NOK due to currency hedging. According to analysts, this process is coming to an end.
The price of oil has risen from about $60 at the beginning of the year to over $100 now.Photo: Adobe Stock, standard license
The impact of policy and forecasts for the future
Norges Bank previously sold NOK and bought foreign currencies. Now, the situation may change. Higher tax revenues from the oil sector may limit such actions. This could slow further strengthening of the krone.
Analysts also point to the significance of the conflict in the Middle East. Its prolongation supports high energy prices, which favors a stronger krone. On the other hand, an end to hostilities could reverse the trend. Forecasts indicate the euro exchange rate at 11.50 NOK by the end of the year.
Analysts also point to the significance of the conflict in the Middle East. Its prolongation supports high energy prices, which favors a stronger krone. On the other hand, an end to hostilities could reverse the trend. Forecasts indicate the euro exchange rate at 11.50 NOK by the end of the year.
A change is also visible on the market against the dollar. The rate fell from 10.07 NOK at the beginning of the year to 9.63 NOK. This shows a broader trend of strengthening of the Norwegian currency. At the same time, analysts point out that the room for further declines in exchange rates may be limited if commodity prices stop rising.
How do you rate this article?