Bayerische Landesbank bets against Norwegian Krone

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  • Expects the currency to fall in value by 1% against the euro

  • Concerns over housing market overheating, levels of personal debt, oil exploration and

  • Exchange rate is expected to fall as money is transferred internationally to take advantage of rising interest rates

Bayerische Landesbank holds a bearish outlook for currency as they expect it to continue to fall in value against euro in 2018, although not as far as levels seen last year. The commercial bank made recent comments this week as they expect the currency to depreciate by a 1% against the value of the euro. On the face of it, Norway’s macro economic environment seems to support this view, while the housing market cools and other macro fundamentals threaten the value of the krone.

Crude oil production has been falling in Norway of late, with the last round of applications to tap into Arctic oil exploration blocks falling to low levels. Big oil exploration giants appear to be shunning Norway. A number of failed oil explorations in 2017 have weighed hard, while the uncertainty over oil drilling licences and whether they violate Norway’s pledge to meet obligations under a climate agreement. Rising brent crude prices have supported the currency of late but analysts feel it is over priced and oil prices will pair back gains.

Inflation within Norway is well below the 2.5% target set by the central bank, although the bank is of the opinion that inflation will recover and it has been rising of late. However the bigger threat to the economy remains Norway’s overvalued property market, where 85% of people in the country are homeowners. Concerns have been voiced over the levels of personal debt alongside house prices. Recent signals indicate that the house prices are stalling and in some cases falling. It is unlikely that interest rates will be rising by too much soon, despite recent hawkish comments from the central bank. If coupled with the European Central Bank (ECB) adopting a policy of monetary tightening; which is widely expected; it is likely that there will be more people exchanging Norwegian krone for euros and other currencies; as people take advantage of more attractive interest rates. This will see the value of the krone fall relative to the euro.

Traders remain cautious, incase history repeats itself, burnt by the Norwegian krone bull run of 2017 that quickly ran out of steam.

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Rachel Doyle
Rachel Doyle
Senior Content Specialist
Rachel has over 10 years’ communications and writing experience, having started her career in financial services where she spent nine years working in various roles. She started out in fund… Read more

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