Denmark: First intervention from the central bank since early 2017 – Nordea Markets
Jan Størup Nielsen, analyst at Nordea Markets, points out that for the first time since March 2017, the Danish central bank has started buying kroner to defend the peg as an independent Danish rate hike draws closer.
“In December the Danish central bank bought DKK 11.6bn in the currency market to counter a weakening of the krone against the euro. This was the first time in the last 20 months that the central bank had to intervene to keep the EUR/DKK cross within the wanted range.”
“We think the reason for the current weakening of the DKK is twofold: first, monetary policy in the Euro area has been tightened relative to the Danish central bank’s policy line and second, the structural appreciation pressure on the DKK has diminished.”
“Based on the central bank’s response pattern in December, we believe that the bank will intervene if EUR/DKK moves above 7.467 – just equivalent to the current spot rate in EUR/DKK.”