The Norwegian krone has suffered its biggest single day collapse against the US Dollar in modern times.
Many foreigners living in Norway are even followers of the currency markets. It's in our interests if we still have financial holdings back “home.” Anyone who has savings or business income/expenses in major foreign currencies needs to pay attention.
The currency markets have been chaotic ever since the coronavirus took hold in Europe, but Wednesday saw records fall in many currency pairs. The biggest headline grabber in Norway was the USD-NOK.
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Astonishing fall against the US Dollar
Experts described the historic krone collapse as a “fire sale” as it recorded the biggest single day fall in modern times. The Norwegian krone was already at record low against the US Dollar when the currency market hit the panic button on Wednesday.
While Norway has implemented emergency coronavirus measures to control the spread of the virus, the currency chaos was caused by the tumbling oil price, global markets and general uncertainty.
On 1 January, 2020, 1 US Dollar bought 8.71 kroner. On the morning of Wednesday 18 March, 1 US Dollar bought around 10.48 kroner. But by 4am on Thursday 19 March, the Dollar stood at 11.90 kroner. Extreme barely describes the movements.
This means that someone buying 10,000 US Dollars would today need approximately 119,000 kroner. Just eleven weeks ago, that very same transaction would have cost 87,100 kroner. In fact, just 24 hours ago, it would have cost 104,800 kroner!
The USD-NOK rate on Wednesday is the biggest weakening in a single day since Norges Bank left the fixed exchange rate regime in 1992. The previous biggest fall was back in December 2016, but then the rate plunged 60 cents. Seen as extreme now, it doesn't come close to what happened yesterday.
Markets in meltdown
The oil price fell to new lows at USD $25 per barrel, while the American stock exchanges continued their downward trajectory.
“The financial markets are about to melt down. The markets almost don't work,” says Magne Østnor, currency strategist at DNB Markets to E24. It isn't just the US Dollar market where the krone is struggling.
At the time of writing one Euro costs 12.91 krone, the most expensive figure ever. The British pound swung to more than 13 kroner for the first time in almost five years, standing at the time of writing at 1 GBP = 13.69 NOK. “The movements in the krone are extremely brutal – from already extreme levels,” adds Østnor.
“Worse than the financial crisis”
Østnor said there are many in the financial industry who are saying that this is worse during the financial crisis that began in 2008. However, we do not yet know the duration of this, and that's the most important thing for long-term economic effects.
“If we see that we are able to limit the spread of infection and resume activity, the financial markets will eventually come back. Then we might ride off the storm without it being more than a setback. The longer this lasts, the greater the risk of a deeper and longer-lasting setback in the real economy than during the financial crisis,” he explains.