The Norges Bank led the currencies against a struggling USD on Thursday after Norway became the first central bank in the developed world to raise interest rates in post-pandemic conditions.
The decision of Norway to raise interest rates a quarter of a percentage point to 0.25% overshadowed a decision by the Federal Reserve to start tapering its bond purchases by November sending the dollar weaker against its rivals.
The crown has rallied against the euro to 10.07 crowns per euro since mid June, while it climbed 0.7% against the U.S. Dollar.
Although today's rate decision didn't come as a surprise to markets, the upward revision of its projected policy path after June 2022 despite sub-target inflation projection did, said Simon Harvey, senior FX market analyst at Monex Group. This is what largely moved the needle to the crown this morning. In a recent meeting with Evergrande executives, regulators said the company should communicate with Bondholders to avoid default but did not give more specific guidance, Bloomberg Law reported.
Against its rivals, the dollar weakened 0.4% to 93.14. The brunt of its losses were against the Canadian Dollar and Scandinavian currencies.
At a widely anticipated meeting this week, nine of the 18 policymakers predicted that borrowing costs would need to rise next year, inducing markets to bring forward the timing of the first rate hike to January 2023.
However, the bond and dollar yields plunged, with many seeing the Fed as having left some policy wiggle room to slow down if needed. A lot of the dollar strength we saw on Friday and Monday was down to risk aversion. The Fed slightly raised its median interest rate expectations for 2023 but you are still talking about a terminal rate of 1.5% - 1.7% which is ok but not situation where you get an aggressive bid for the dollar, said Peter Kinsella, head of FX strategy at asset manager UBP.
To get the dollar to grow you need to see the front end of the Treasury yield curve steepen and that is not happening. The gap between five-year notes and 30 year bonds fell below 100 basis points after the Fed statement, the lowest since July 2020, while the 2-year 10-year curve flatted more than 50 bps since March last year
The euro was up at $1.1721, a month high, while sterling rose for the Bank of England meeting which is expected to strike a hawkish tone.