Financial analysts in Oslo warn that a British vote in favour of leaving the European Union (EU) may weaken not just Britain’s currency but Norway’s krone as well. The krone has already weakened during the past week against major currencies, while market uncertainty reigns.
“We think the krone will weaken, for several reasons,” currency exchange strategist Magne Østnor of DNB Markets wrote in a market update late last week. Newspaper Dagens Næringsliv (DN) reported that Østnor thinks economic growth in Norway will be hit by weaker growth in Great Britain.
If Britain leaves the EU, Østnor wrote, investors will be less willing to take risks, and the Norwegian krone is a risk-sensitive currency. The pending referendum on Britain’s EU status Thursday also comes just before the summer months, a period usually characterized by low revenues and weaker liquidity.
Investors may thus flee to more secure currencies, like the US dollar, Østnor believes, adding that “a Brexit can well be the shock that will lead to negative interest rates here at home, too.” The key policy rate set by Norway’s central bank (Norges Bank) currently stands at just 0.5 percent, and otherwise is expected to remain unchanged when the bank’s executive boards meets later this week for the last time before the summer holidays, but just before the Brexit vote will become clear.
Ole Håkon Eek-Nilsen, currency analyst at Nordea Markets, also thinks a vote against continued British membership in the EU will not be good for Norway’s krone. Norway’s currency is still affected the most by oil prices, and both the British pound and the EU’s euro may weaken as well with a British exit, “but the fear that’s in the market now, that aversion to taking risks, is not good for the krone,” Eek-Nilsen told DN.
The biggest fear, Eek-Nilsen wrote, involves European cooperation itself and the value of the euro. Some analysts were warning Tuesday morning that capital may dry up again, setting off another finance crisis similar to the one in 2008.
Marius Gonshold Hov of Handelsbanken Capital Markets said there are several factors that have contributed to the krone’s weakness. The biggest factor, he wrote, “is the uncertainty around Great Britain’s EU membership.” That’s boosted the value of the US dollar, the Japanese yen and the Swiss franc.
One thing was sure: Norway’s krone remains volatile. After weakening last week, there was some resurgence on Monday with one US dollar costing NOK 8.26 late Monday afternoon. It remained at that level on Tuesday morning. Last week a dollar cost just over NOK 8.40.