Euro dips on Ukraine caution, Norwegian krone dives

Milan

THE euro fell on Thursday (Mar 31) on caution about developments in Ukraine and limited progress in peace talks, while the Norwegian krone fell sharply as oil prices dived and after the central bank decided to buy foreign currency.

Ukrainian forces are preparing for new Russian attacks, Ukrainian President Volodymyr Zelensky said, with peace talks set to resume on Friday.

The euro dropped 0.5 per cent to US$1.1105 after hitting its highest since Mar 1 at US$1.1184 earlier in the session.

The dollar index, which tracks the US currency against 6 peers, rose 0.3 per cent to 98.150.

The rouble was down 8 per cent versus the greenback at 81.82. Investors also focused on the European Central Bank (ECB)'s next moves after robust inflation data.

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ECB chief economist Philip Lane said on Thursday euro zone inflation was increasingly likely to stabilise around 2 per cent but the ECB should be ready to change course if the outlook deteriorates due the war in Ukraine.

Money markets are currently pricing in an around 85 per cent chance of 20 basis points (bps) of ECB rate hikes by July 2022 and 60 bps by year-end.

The Norwegian krone plunged after oil prices dived and the central bank said it would buy foreign currency for its sovereign wealth fund in April.

Norges Bank plans to exchange 2 billion kroner (S$309.8 million) per day into foreign currency, which will in turn be invested abroad by the wealth fund, already the world's largest with assets of US$1.3 trillion.

The Norwegian currency fell 1.6 per cent against the euro, hitting its weakest level since Mar 18 of 9.7162, and 2.1 per cent versus the dollar at 8.7485.

The Norwegian currency is not far from its highest since October 2018 against the euro at 9.4424 and its highest since November 2021 versus the dollar at 8.5675, which it hit last week on the back of a rally in Brent crude oil futures.

Other commodity currencies, such as the Australian and New Zealand dollar, dropped by around 0.4 per cent.

The Swedish krone was slightly lower against the euro, just off its highest since January of 10.3059 hit on Wednesday as the central bank said it would have to tighten monetary policy this year. REUTERS