The decision in Denmark to allow for the use of foreign currency issuance to cover the big public deficit could potentially have significant implications for the short-term DKK money market, per Danske Bank.
Key quotes
“When the government uses foreign currency issuance to fund the deficit it increases the net position 1:1.”
“Worst case we could see the net position rise to around DKK240-260bn in May from currently around DKK125bn. That would send FX forwards more in negative.”
“Finally, this would make it less attractive to be short EUR/DKK, while we stress that EUR/DKK depends just as much on the development in equity markets.”
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