May 16 (Bloomberg) -- Norway’s krone held near a four-month low against the dollar as investors sought refuge in more liquid currencies after political turmoil in Greece reignited concerns the country may leave the currency bloc.
Greece’s future in the euro was thrown into doubt by the political standoff following inconclusive May 6 elections, forcing President Karolos Papoulias to call for new elections yesterday. German Finance Minister Wolfgang Schaeuble said the next vote will be a referendum on whether Greece exits the euro.
“Krone weakness is related to global events and the unprecedented uncertainties as regards whether Greece will stay in the euro,” Carl Hammer, chief foreign-exchange strategist at SEB AB in Stockholm, said in reply to emailed questions. “Small and illiquid currencies will always suffer in the current environment.”
The currency hit a four-month low against the dollar earlier today before paring losses. It was little changed at 6.004 per dollar and strengthened 0.1 percent to 7.6272 per euro, after reaching almost a three-month low earlier.
The krone hit a nine-year high against the single European currency in March as investors sought refuge from the European debt crisis. Krone gains prompted an unexpected interest rate cut in March and a warning from Norges Bank Governor Oeystein Olsen that increased risk aversion may lead to a krone squeeze.
The political standoff in Greece has rekindled concern the country will renege on pledges to cut spending as required by the terms of its two bailouts worth 240 billion euros negotiated since May 2010, and, ultimately, leave the 17-nation euro area.
“As long as contagion risks from a potential Greek exit dominate the market sentiment, the krone will remain under pressure,” said Bjoern-Roger Wilhelmsen, chief currency strategist at Swedbank First Securities ASA.
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