The Pound to Norwegian Krone (GBP/NOK) exchange rate advanced to a three-week high on Friday as the currencies of oil producing nations fell sharply after OPEC announced that the group’s members will not alter its oil production target.
Against the US Dollar (USD), the Norwegian Krone went into free fall and tumbled to its lowest level in five-years as commodity traders flogged to the safety of the US currency and abandoned the currencies of oil producing nations.
The value of Brent crude was an additional 1% lower at $71 per barrel, the lowest price recorded in four years, after having already plummeting by 6% on Thursday.
‘Krone selling pressures have been reinforced by the further decline in the price of crude oil. Even at lower crude oil prices, it does look like Krone weakness is overshooting in the near-term but could still extend further. We are looking for the Krone to bounce against the Euro after recent heavy selling but not until crude oil price begins to stabilise,’ said a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd.
The decision by OPEC to not curb production means that the market will continue to see an oversupply of oil and keep prices low. Some see low oil prices as a possible driver of economic growth but others are concerned that the low prices will add to concerns over low inflation.
‘The outcome of the OPEC meeting and the slump in oil prices that followed bring huge uncertainties. It is bad news for European Central Bank (ECB) President Mario Draghi because it will prevent any rebound in inflation,’ said Naeem Aslam, Chief Market Analyst at Avatrade.
The Norwegian Krone could recover some ground against the Euro later in the session if anticipated Eurozone inflation disappoints. A weaker figure will increase pressure on the ECB to take more action to tackle the threat of deflation and encourage growth.
