Norway’s Krone Drops to Six-Month Low as Oil Damps Rates Outlook

Updated on

Norway’s krone fell to the weakest level against the euro in six months amid speculation a slump in oil prices will weigh on the economy.

The krone slipped at least 0.8 percent against each of its 16 major peers tracked by Bloomberg. The Norges Bank cut interest rates to a record-low 1 percent on June 18 and said it may need to ease policy further to avoid a recession in western Europe’s biggest oil producer. Brent crude dropped to $55.10 a barrel Tuesday, the lowest since April, as Greece stepped closer to leaving the euro area, raising speculation its demand for the fuel will be affected.

“Norway has been a very weak performer,” said Jane Foley, a senior currency strategist at Rabobank International in London. “Oil clearly is a big driver. We saw weakness in oil prices last week and yesterday and Greece concerns sparking worries about euro-zone demand for oil.”

The krone dropped 1.2 percent to 9.0355 per euro as of 3:58 p.m. London time, and touched 9.0444, the weakest since Jan. 15. It fell 2.3 percent to 8.2617 per dollar, the biggest daily slide since June 5.

The krone is the worst-performing major currency in the developed world over the past week, falling 3.1 percent against a basket of currencies tracked by Bloomberg Correlation Weighted Indexes. A report Tuesday showed manufacturing output fell an annual 2.6 percent in May.

“Norway has become heavily leveraged to the oil price because of the perception that the Norges Bank is setting policy with one eye on the oil price,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London.