The Norwegian crown gained against the euro on Thursday, following an interest rate hike by the Norgesbank.
EUR/NOK fell to just below 7.8 during European trading, from around 7.81 before the announcement of interest rate decision. Earlier this week, the EUR/NOK had a hit high of 7.95.
Norgesbank on Thursday hiked the main interest rates by 25 bps to 2.25 percent, its first since May 2010.
The Norgesbank should take up its tightening cycle again, thus ending one year of monetary policy status quo. Sound domestic demand, underpinned by low interest rates, a low unemployment rate and an upturn in incomes all plead in favour of tightening. Moreover, CPI data published this week, +0.5% mom and 1.3% yoy, also back this scenario, said Societe General (SG) in a note.
The central bank also said interest rates would gradually rise to a more normal level.
The single currency also came under pressure after a report from Eurostat on Thursday showed that industrial output in the region fell 0.2 percent in March month-on-month, compared with the markets' expectation of 0.3 percent increase. Besides,ongoing concerns over the debt restructuring of Greece weighed on the euro.
The NOK, as well as the other pro-cyclical and commodities currencies, still have significant medium-term upside. We maintain our bearish EUR/NOK scenario, SG said
The exchange rate has been fluctuating with no clear trend in a 7.68-7.98 range since the beginning of the year. A downward break of this range will ultimately open the door to the 7.40 area, before seeing a return to a historical low of 7.25, it added.
The Norwegian crown also traded higher against the US dollar, with the pair USD/NOK dropping to 5.5050 from 5.5100 just before the interest rate decision.