At first glance, the ISK does not seem to stand out from neighbouring countries’ currencies as regards fluctuations in the past six years or so. This relative homogeneity can be seen in the charts above, which map the exchange rates of various currencies against the euro and the US dollar. Naturally, individual currencies fluctuated for many reasons during the period In the case of Norway and Canada, oil exporters both, exchange rate movements line up more closely with global petroleum product prices than is the case for the other countries.

To be sure, it must be borne in mind that the Central Bank of Iceland (CBI) has intervened more actively in the FX market than its counterparts in the other currency areas depicted in the charts. For example, the CBI sold large amounts of foreign currency from its reserves when the pandemic was at its peak and then bought large amounts in 2025. Without this intervention, the ISK would presumably have been somewhat more volatile during the 2020s to date.

Wide swings in the ISK and other currencies

One way to compare fluctuations in the currencies, albeit a rather crude one, is simply to look at the high-low range for each since the start of the decade, excluding the most extreme outliers. We have rescaled the currencies by assigning each one a value of 100 at the starting point; i.e., January 2020. We then exclude the 10% of values that lie at the outermost range for each currency.

The table below summarises the main results obtained with this method and gives a simple comparison of the changes in each cross exchange rate from the beginning of the decade through March 2026.

With the proviso that the table depicts a simplified scenario and not a fully developed statistical analysis, we can infer a number of interesting things from it. For example, after the top 5% and bottom 5% of values are omitted, the ISK does not stand out in terms of volatility over this period. The chart also highlights a point we have made previously, and one that has been mentioned frequently by those involved in the currency world: that the EUR and the USD have fluctuated wildly against one another during the period in question. No single asset class accounts for more daily activity in global financial markets than transactions between these two currencies.

The USD has the unique status of being both the world’s leading reserve currency and the benchmark currency for commodity trading. Because of this, the general rule is that investors tend to take refuge in USD assets during times of uncertainty. But like any rule, it has its exceptions, as developments in the past year have shown plainly – presumably because the whiplash in the global markets has more often than not been caused by the words and deeds of the US administration. The US tariff war and the hostilities in the Persian Gulf are two handy examples.

Exchange rate volatility has subsided

There are many other ways to compare exchange rate fluctuations, and doubtless they will generate somewhat divergent results, depending on the frequency of the underlying data and the measures that are used. Analysts commonly examine volatility in this context, and they typically look at the standard deviation of relative changes between measurements over a specified period of time. For our analysis of the selected currencies, we chose to use trade-weighted exchange rate indices compiled by the Bank for International Settlements (BIS) so as to ensure comparability, and we use monthly averages instead of daily or weekly fluctuations.

The chart above shows volatility in terms of standard deviations in a 36-month moving sample of monthly changes. By this measure, the ISK fluctuated widely between 2017 and 2023. Since then, ISK volatility has receded, and in the very recent term it has been similar to that seen in the currencies of Sweden and Norway. The NOK and the ISK actually moved in tandem from the start of the pandemic, and since the onset of the Ukraine war in 2022, the NOK has been more volatile, on average, than the ISK.

It is also intriguing to examine volatility-related statistics such as the frequency of large movements. By this measure, the ISK has stood out somewhat over the past ten years. But just as with volatility itself, the frequency of such large movements has diminished markedly in recent years, and in the immediate past it has been broadly in line with Norway and Sweden.

In addition, over the past ten years, persistence in deviations from long-term trend has been greater in the case of the ISK than for the NOK. On the other hand, the SEK and the ISK have shown similar persistence; i.e., inelasticity in the duration of deviations from long-term trend. Once again, the more recent figures showed greater consistency with comparison currencies, and in the past five years, the ISK has reverted to long-term trend more quickly than the SEK.

It is important to stress that these observations stem from a brief examination of the data, not a scholarly research project; therefore, it is important to avoid overinterpreting our conclusions. It would be very interesting to see an in-depth study and a comparison of the developments described above.

The ISK: Does it curb volatility or catalyse it?

The core of the matter is this: The ISK exchange rate obviously changes from one period to another. This is a feature of floating currencies, especially those in small open economies. To paint with a fairly broad brush, it appears that fluctuations in the ISK have become more like those in neighbouring countries in recent years, and that fluctuations now reflect changes in underlying factors such as terms of trade and supply shocks more accurately than they did in the past.

To make a long story short, our opinion is that in recent years, the ISK has served the intended purpose of a floating currency more effectively than it used to. The benefits of a floating currency have therefore increased and the costs have diminished. The results of the above analysis strengthen us in that opinion.