EUR/DKK: 7.435 marks the lowest level the Danish central bank is set to tolerate – Nordea

Since the independent Danish interest rate hike in March 2020, EUR/DKK has moved from above 7.470 to the current level around 7.436. In February the Danish central bank sold DKK0.4 B in the currency market to counter strengthening of the krone against the euro. This is the first time in almost four years that the bank has tried to force EUR/DKK higher. More intervention is expected in the coming months, economists at Nordea brief.

Key quotes

“As usual the central bank has not revealed the exact EUR/DKK level where it intervened in February. However, judging from the development in EUR/DKK during the month it seems like at level slightly above 7.435 marks the lower tolerance level for the central bank at the current juncture.”

“The key reason for the downward pressure on EUR/DKK is the very low excess liquidity that spills over to a very large spread between money market rates in Denmark and the euro area.”

“According to our estimates, the amount of excess liquidity in the Danish money market will be squeezed even further towards the end of March. This will most likely trigger more intervention from the central bank and probably also on a larger scale compared to February. Despite this we do not expect the intervention to trigger an independent Danish rate cut.” 

“We expect the central bank to keep its certificate of deposit rate unchanged at -0.60% at least until end-2022.”