March 21, 2019 / 10:13 AM / a month ago

FOREX-Norwegian crown surges as central bank signals rates to rise again

* Investors narrow odds on Fed rate cut by year end

* Dollar nears two-week low but losses limited

* Norwegian crown in focus with Norges rate hike expected

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh (Recasts after Norges bank decision)

By Tommy Wilkes

LONDON, March 21 (Reuters) - Norway’s crown surged on Thursday after the central bank raised interest rates and signalled more tightening would come as the domestic economy strengthened.

The relatively hawkish stance, which was expected, contrasted with the dovish shift undertaken by most central banks, including the European Central Bank.

The crown rose more than 1 percent to 9.5910 against the euro, its strongest since November and headed for its biggest one-day rise since December 2017.

The Norges Bank raised rates to 1 percent from 0.75 percent and raised its policy rate forecasts out to 2021. It said the strength in the domestic economy suggested more tightening would be necessary later in 2019.

“What is the most surprising is that they are already signalling another rate hike in the next six months,” said Niels Christensen, an analyst at Nordea.

Elsewhere, the Swiss National Bank lowered its inflation forecast as it stuck to its ultra-easy monetary policy. The franc was unchanged CHF=EBS>.

A rally in the euro, yen and Australian dollar, after the Federal Reserve all but abandoned plans to raise rates this year dovish confirmation, fizzled out, with the greenback off two-week lows.

Investors had rushed to price in the prospect of rate cuts later this year after the Fed’s move. Benchmark Treasury yields dived to their lowest since early 2018.

The euro rose to as high as $1.1448 overnight, its strongest since early February. It was down 0.1 percent at $1.1403 at 0935 GMT.

The dollar settled at 110.425 yen per dollar, down 0.2 percent against the Japanese currency.

Against a basket of currencies, the dollar index fell to its weakest since early February overnight before recovering to 96.044, up 0.3 percent on the day.

“The Fed delivered a surprisingly dovish message,” said MUFG analysts in a note. “The downward pressure on US yields continues to support our outlook for a weaker US dollar this year.”

Sterling slipped to $1.3172 amid concern a no-deal Brexit next week was still a possibility. The European Union said delaying Britain’s departure was contingent on Prime Minister Theresa May getting her withdrawal agreement approved by parliament. She lost two earlier attempts.

Emerging-market currencies strengthened after the Fed’s meeting. MSCI’s emerging currency index rose to its highest since last June. (Editing by Raissa Kasolowsky)

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