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Danske Bank analysts point out that the pace of FX intervention selling of EUR/DKK rose to DKK4.1bn in December and since October, Danmarks Nationalbank has intervened for DKK5.5bn.

Key Quotes

“The FX reserve declined from DKK441bn in November to DKK435bn in December. Most of the fall was due to FX intervention selling of EUR/DKK, which amounted to DKK4.1bn. EUR/DKK traded above 7.4730 on a couple of days during December, which prompted DN to sell EUR/DKK in FX intervention for the third consecutive month. Since October, Danmarks Nationalbank has intervened for a total of DKK5.5bn.”

“The pair remains supported by a large discount in FX forwards. We do not expect this to change before a Danmarks Nationalbank policy rate hike. However, Danmarks Nationalbank still has ample FX reserves to draw on, which means a rate hike is still some distance away with the current pace of FX intervention. In our view, Danmarks Nationalbank is likely to allow the FX reserve to fall to around DKK400bn before delivering a 10bp independent rate hike.”

“We see a 10bp hike in the policy rate to minus 0.65% as a likely scenario for H2 this year, which should further trigger a fall in EUR/DKK back down to the central rate of 7.46038. Hence, we forecast EUR/DKK at 7.4725 in 1M, 7.4700 in 3M, 7.4725 in 6M and 7.4600 in 12M. We forecast the policy rate will stay unchanged at minus 0.75% in 6M and rise to minus 0.65% in 12M.”