Norwegian crown rallies across the board after strong inflation data

The Norwegian crown rallied across the board on Monday after strong inflation data raised expectations the central bank could increase interest rates soon while the pound remained under pressure before a series of key parliamentary votes over Brexit. With markets trading in a period of low volatility, investors have rushed to buy currencies where central banks are still raising interest rates or economic data has exceeded expectations, indicating a brighter economic outlook.

Norwegian core CPI data for February was 2.6 percent on an annualized basis, above a Reuters forecast of 2.1 percent and well above the central bank's long-term target of 2.0 percent. "This makes (a) March rate hike from Norges Bank a complete done deal, which is a positive for the currency," Nordea strategists said. Norges Bank last year tightened monetary policy for the first time since 2011, lifting its rate to 0.75 percent from a record-low 0.5 percent. The central bank has said it aims to raise rates another five times by the end of 2021.

The optimism over Norway's economic outlook was in contrast to the general caution over the broader European economy after the European Central Bank slashed its growth forecasts for 2019 and postponed its expectations of a first rate hike. Short euro bets, already near a 2-1/2 year high, according to latest futures positioning data for the week ending March. 5 is likely to receive a further boost in the coming days, investors said. The single currency edged 0.2 percent higher at $1.1247 after falling 1.2 percent last week, its biggest weekly loss in more than six months.

Sterling came under renewed pressure as British Prime Minister Theresa May was warned by eurosceptic lawmakers that her divorce deal would be rejected by parliament for a second time. The pound briefly dipped to a three-week low of $1.2945 in Asian trading before recouping most of its losses. Reflecting the broader market nervousness before a series of key votes in parliament this week, gauges of expected market volatility in the pound ticked higher across the board.

(With inputs from agencies.)