The Norwegian crown slumped to a 13-year low against the dollar on Thursday, after the central bank surprisingly cut interest rates to record lows to boost growth in an economy struggling with the falling price of oil, its main export. It shed over 2 percent to trade at 8.4842 crowns, its lowest since mid-2002, according to Reuters data. Against the euro, the Norwegian crown fell to 9.5080 crowns per euro, its weakest since August 26 and on track for its biggest one-day percentage loss in over two years.
In June, the Norges Bank had cut rates and said there was a probability of up to 70 percent of another cut in September if the economy developed as expected. Since then domestic growth has weakened as a result of falling oil industry investments, but a weaker currency, higher inflation and a still strong housing market led many to expect a delay in the next cut. In a step that took many by surprise, however, Norway's central bank cut its key policy rate by 25 basis points to 0.75 percent and flagged downside risks.
"The central bank said the outlook for the Norwegian economy is such that they may have to cut the key policy rate further in the coming year. Given this, the crown could see renewed selling interest," said Marshall Gittler, head of global FX strategy at IronFX Global. The euro, meanwhile, built on recent gains after the head of the European Central Bank downplayed the need for further monetary stimulus any time soon and Germany's IFO survey for September beat expectations.
The euro was 0.2 percent higher at $1.1210 staying away from Wednesday's low of $1.1105, which was its lowest since September 4. "The euro is still a carry currency, so its gains might not last," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. "Some people think that anytime the euro rises, it's a good time to go short, to build short positions," he said.
ECB President Mario Draghi said on Wednesday that while the risks to Europe's inflation and growth outlook have increased due to the emerging market slowdown, the bank would need more time before deciding on any fresh action. Markets have taken the view that the other major central banks were under growing pressure to do more after the Federal Reserve delayed a hike in interest rates last week due partly to a soft global outlook. Therefore, Draghi's comments disappointed some euro bears. The key focus for investors will now be a speech by Fed Chair Janet Yellen. She is due to speak on "Inflation Dynamics and Monetary Policy" at 2100 GMT.