Flash Comment Denmark: FX intervention continued in November

Danmarks Nationalbank (DN) sold DKK1.2bn in FX reserves due to FX intervention in November.
DN allowed EUR/DKK to trade above 7.4730 in November and thus above the FX intervention level from October.
We forecast EUR/DKK to trade above 7.4700 on 12M supported by, among other things, the large discount in FX forwards.

Danske Research Team Danske Bank A/S

Danmarks Nationalbank (DN) has just published November's FX reserve data and central bank balance sheet data. In November, the FX reserve declined by DKK1.9bn to DKK441bn. The decline was partly due to FX intervention. DN sold DKK1.2bn in FX reserves due to intervention. Government deposits were DKK84bn in November, up from DKK76bn in October.

It was the second month in a row DN has sold EUR/DKK in FX intervention. DN allowed EUR/DKK to rise above 7.4730 and thus above the peak from October; hence, it showed patience with respect to the weak DKK. Over the past two months DN has sold an accumulated DKK1.6bn of FX reserves. In comparison, DN sold off DKK14bn of FX reserves last December and January in FX intervention. Hence, the upwards pressure on EUR/DKK remains limited.

We forecast EUR/DKK to continue to trade above 7.4700 on 12M aided by a large discount in FX forwards and late next year possibly also by the flow of vacation money (see DKK Edge: Beware the wall of vacation money , 25 October). Hence, DN will probably need to remain active in the FX market to cap EUR/DKK topside.

At some point, it will probably spur speculation about an independent DN policy rate hike (of the magnitude of 10bp). While that is justified, the upwards pressure on EUR/DKK still remains limited and DN has ample room to draw down the FX reserve to manage the peg - we estimate about DKK40bn. Hence, a Danish rate hike is not around the corner in our view. Our base case is therefore still that DN keeps the key policy rate unchanged at minus 0.75% on 12M.

Download The Full Flash Comment

Author

Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.