- Danmarks Nationalbank (DN) sold DKK33.9bn of FX in intervention to support DKK in April.
- The move highlights that the downward pressure on EUR/DKK has reversed and that DN is now reacting to cap EUR/DKK upside.
- Government deposits declined as projected in April and we stick to our view that bond sales will be resumed in Q4 this year.
DN’s intervention in the FX market in April indicates that the downward pressure on EUR/DKK has reversed and that DN is now reacting to cap EUR/DKK upside. Historically, FX intervention of this amount has triggered a unilateral rate hike from DN and, therefore, the market will keep a close eye on DN on Thursday for a possible rate announcement.
However, the current circumstances are not normal. DN allowed accumulated inflow into the FX reserve of above DKK100bn following its recent cut of the key policy rate to minus 0.75%. DN may want to shrink the FX reserve by a similar amount before raising its policy rates. This view is further supported by the experience from Q4 08, where DN allowed inflow of around DKK30-50bn before cutting rates following the significant loss of FX reserves of DKK60bn in October 2008.
Government deposits fell around DKK26bn to DKK235bn, which was in line with DN’s projection for government payments in April including net issuance. Hence, we still expect the government to resume bond sales in Q4 this year, when its deposits at the central bank are likely to dip below the DKK100bn mark
Recommended Content
Editors’ Picks
EUR/USD fluctuates near 1.0700 after US data
EUR/USD stays in a consolidation phase at around 1.0700 in the American session on Wednesday. The data from the US showed a strong increase in Durable Goods Orders, supporting the USD and making it difficult for the pair to gain traction.
USD/JPY refreshes 34-year high, attacks 155.00 as intervention risks loom
USD/JPY is renewing a multi-decade high, closing in on 155.00. Traders turn cautious on heightened risks of Japan's FX intervention. Broad US Dollar rebound aids the upside in the major. US Durable Goods data are next on tap.
Gold keeps consolidating ahead of US first-tier figures
Gold finds it difficult to stage a rebound midweek following Monday's sharp decline but manages to hold above $2,300. The benchmark 10-year US Treasury bond yield stays in the green above 4.6% after US data, not allowing the pair to turn north.
Worldcoin looks set for comeback despite Nvidia’s 22% crash Premium
Worldcoin price is in a better position than last week's and shows signs of a potential comeback. This development occurs amid the sharp decline in the valuation of the popular GPU manufacturer Nvidia.
Three fundamentals for the week: US GDP, BoJ and the Fed's favorite inflation gauge stand out Premium
While it is hard to predict when geopolitical news erupts, the level of tension is lower – allowing for key data to have its say. This week's US figures are set to shape the Federal Reserve's decision next week – and the Bank of Japan may struggle to halt the Yen's deterioration.