How do fluctuations in interest rate differentials during macroeconomic announcements affect the response of the Norwegian Krone (NOK), in contrast to the Danish Krone (DKK), which maintains stability through its fixed exchange rate to the Euro?

Abstract

This thesis examines how the Norwegian Krone (NOK) and Danish Krone (DKK) exchange rates respond to interest rate movements during macroeconomic announcements. Norway operates under a flexible exchange rate regime, while Denmark maintains a fixed exchange rate policy pegged to the Euro. By analyzing high-frequency exchange rate data and 2-year interest rate swaps from 2014-2024, the study aims to understand the reaction of these currencies to interest rate changes around key releases. The findings indicate a notable difference in the responses of the NOK and the DKK to interest rate movements, reflecting the differing exchange rate regimes. Also, the recent substantial financial growth of Novo Nordisk has compelled the Danish central bank to take measures to stabilize the DKK against the Euro.