Denmark: Longest period without intervention since advent of euro – Nordea Markets

Jan Størup Nielsen, Research Analyst at Nordea Markets, points out that the recent data release from the Danish central bank shows that currency market intervention was not needed in June either, which marks the 15th straight month without intervention – the longest period since the advent of the euro.

Key Quotes

“The current long period of EUR/DKK stability followed some turbulent years that culminated at the beginning of 2015 when the central bank sold Danish kroner for a total of DKK 275bn to prevent the krone from strengthening too much versus the euro.”

“In this light, it is even more extraordinary that the bank after a relatively short time has managed to find the equilibrium level of the interest rate differential.”

“However, the long period without intervention could come to an end in the autumn when the different monetary policy approaches by the ECB and the Danish central bank will become more explicit.”

“Even if our assumption that the krone will weaken versus the euro proves correct, we do not expect the Danish central bank to sanction a rate hike before the ECB. If the anticipated krone weakening brings EUR/DKK above the central parity, the bank will probably initially resort to intervention to counter krone weakening.”

“In our view, it would take relatively considerable and extended upward EUR/DKK pressure for the central bank to consider an independent rate hike.”