The Euro to Norwegian Krone (EUR/NOK) exchange rate hit a monthly high on Tuesday morning.
After European economic data produced mixed results which erred towards the positive, the shared currency strengthened versus most of its major competitors. Additional gains are as a result of a positive speech from European Central Bank (ECB) President Marion Draghi who stated that quantitative easing was already having a positive effect in the Eurozone.
The Norwegian Krone softened versus the majority of its most traded currency peers on Tuesday after the domestic trade surplus dropped a fraction. The main reason for the Krone’s depreciation, however, is speculation that the Norges Bank will cut the benchmark interest rate in response to falling oil prices.
The Euro to Norwegian Krone (EUR/NOK) exchange rate is currently trending in the region of 8.8075.
Euro (EUR) Exchange Rate Gains as Core Inflation Rises
In addition to positive remarks from ECB officials seeing improved demand for the common currency, relatively positive domestic data fuelled the advance. Of particular significance was the yearly Eurozone Core Inflation rate which rose to 0.7% in February, a 0.1% increase over the median market forecast.
As well as core inflation improving, economic sentiment in both the Eurozone and Germany improved in March. The ZEW Eurozone Sentiment Index came in at 62.4 in March, advancing beyond the market consensus of a rise from 52.7 to 54.94. The ZEW German Economic Sentiment index came in at 54.8 in March, eclipsing the previous figure of 53.0 but not managing to equal the median market forecast of a rise to 56.69.
‘My feeling is that the boost in confidence caused by QE came mostly, I would say, until January and February,’ ZEW president Clemens Fuest said.
The Euro to Norwegian Krone (EUR/NOK) exchange rate dropped to a low of 8.5136 today.
Norwegian Krone (NOK) Dives on Potential Rate Cut
As described above, low oil prices have caused many traders to speculate that the Norges Bank will cut the cash rate on Thursday, and the central bank is expected to make further cuts before June.
Jens Pedersen, Senior Analyst at Danske Bank said; ‘FX markets have turned their attention to the NOK this week, where the move lower in the oil price together with further dovish pricing of Norges Bank ahead of the scheduled monetary policy meeting Thursday sent EUR/NOK above 8.70 for the first time since mid February. We expect Norges Bank to cut rates by 25bp on Thursday and to present a new interest rate path with a 50% implied probability of another rate cut before June. We do not expect Norges Bank to cut rates further post March and we still expect a re-pricing of Norges Bank, ECB QE and an oil price recovery to drag the cross lower towards 8.50 in 3M, 8.25 in 6M and 8.15 in 12M.’
Euro to Norwegian Krone (EUR/NOK) Exchange Rate Forecast to Trend Higher
With increasing expectation that Norges Bank will loosen monetary policy, and with vastly improved sentiment towards the ECB, the Euro to Norwegian Krone (EUR/NOK) exchange rate is likely to continue trending lower over the course of the European session on Tuesday.
Wednesday’s session may see EUR/NOK volatility with European trade balance and construction data due for publication.
The Euro to Norwegian Krone (EUR/NOK) exchange rate climbed to a high of 8.8107 today.
