Since mid-March, the Danish krone has been strengthening markedly against the euro. Currently, EUR/DKK is trading around 7.445. Despite this, the Danish central bank has not yet intervened. However, unless excess liquidity starts to pick up, the bank could start to sell krones as soon as EUR/DKK drops below 7.440.
Key quotes
“Given the large interest rate spread, we find it likely that the Danish krone will continue to appreciate, thereby increasing the likelihood of the Danish central bank starting to sell DKK. We expect this to happen if EUR/DKK goes below 7.440.”
“If the bank starts to intervene in the FX market, this would bring some much-needed liquidity to the Danish money market. However, as the ECB will most likely continue to increase excess liquidity in the Euro-area, this intervention from the Danish central bank will not necessarily be enough to reverse the current downward pressure on EUR/DKK.”
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