The Norwegian krone appreciated against the euro last week, and was by far and away the best performer among the G10 currencies. We largely attribute this outperformance to the increase in global oil prices. Brent crude futures rose above the $80 a barrel level for the first time this year at one stage last week, which is clearly bullish for the Norwegian currency due to its dependence on the commodity.
Wednesday's inflation data also provided some modest support for NOK, as this provided some support for the aggressive stance taken by Norges Bank. Headline inflation remained unchanged at 4.8% in December, remaining at its highest level in three months and in line with market expectations, while core inflation fell to 5.5%. Despite the drop in underlying inflation, it is still too high to be consistent with the central bank's target, supporting the notion that rates are likely to remain high for some time, as warned by Norges Bank in December.
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