The Norwegian crown has had a tough start to 2023, with the currency being the worst-performing G10 currency so far this year. The crown’s struggles have been attributed to turmoil in Norway’s banking sector and a slower pace of central bank rate hikes compared to its peers in the U.S. and Europe.
The banking sector in Norway has been plagued by issues related to money laundering and fraud, which have hurt the reputation of Norwegian banks and put pressure on the crown. In January 2023, Norway’s largest bank, DNB, was fined a record $600 million for failing to comply with anti-money laundering regulations. This was followed by similar fines for other Norwegian banks.
As a result of the banking sector’s problems, high-beta currencies like the Norwegian crown have come under pressure, as investors have become more risk-averse. The crown hit a three-year low against the euro on Tuesday and a five-month low against the dollar in March, highlighting the currency’s struggles.
Recovery in Sight for the Norwegian Crown?
Despite the Norwegian crown’s difficulties, there are signs that the currency may be due for a recovery. One reason for this is that the problems in Norway’s banking sector may be starting to be resolved. In March, the Norwegian government announced new measures aimed at preventing money laundering and fraud in the country’s banking system. The measures included increased funding for financial regulators and tougher penalties for banks that fail to comply with anti-money laundering regulations.
Another reason for optimism about the Norwegian crown is that the country’s central bank, Norges Bank, may be poised to raise interest rates at a faster pace. Norges Bank raised interest rates in December 2022 for the first time in three years, but has since kept rates on hold. However, with inflation in Norway above the central bank’s target and the country’s economy showing signs of strength, Norges Bank may be inclined to raise rates again in the near future. This could provide a boost to the Norwegian crown.
