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EUR/NOK: the ECB versus Norges Bank

The rate between the euro (EUR) and the Norwegian krone (NOK) reflects the relationship between two central banks : the European Central Bank (ECB) and Norges Bank, Norway's central bank. Unlike the eurozone, Norway keeps its own currency and an autonomous monetary policy.

The primary driver of the rate is the interest-rate gap between the two zones. In recent years Norges Bank has pursued a policy of relatively high rates to contain inflation ; when this yield gap widens against the ECB, the krone gains support. Conversely, faster easing by Norges Bank tends to weigh on the NOK.

The second driver is commodity prices. Oil and gas make up a major share of Norway's exports, so the krone is often correlated with energy prices. A currency less liquid than the euro, the NOK can also react sharply to the markets' appetite for risk : it tends to retreat during episodes of risk aversion, then to recover when confidence returns. These factors make the EUR/NOK rate more volatile than the major pairs, hence the value of following its movements before triggering an exchange.

Written by Brice Delhome.