EUR/DKK to head towards the central parity of 7.462 on a sharp fall in US equities – Nordea

To counter the downward pressure on EUR/DKK, the Danish central bank decided on 30 September to sanction an independent interest rate cut of 10bp. This has lifted EUR/DKK up to around 7.437. For now, the pressure on the DKK has eased but much depends on the US equity market, economists at Nordea brief.

The development in EUR/DKK depends very much on the US equity market

“We expect the Danish central bank to leave the deposit rate at the current level of -0.60% at least until early 2024. Over the coming months the amount of excess liquidity is expected to increase, which most likely will help further ease the pressure on the DKK.”

“If the returns of Danish pension funds from the US equity markets continue to increase, it will likely cause more downward pressure on EUR/DKK and trigger a need for more intervention from the Danish central bank.”

“If US equities fall back on a larger scale, the EUR/DKK will likely be pushed back towards the central parity of 7.462. A clear reminder of how the build-up of substantial net foreign wealth in Denmark has caused the monetary policy to be much more procyclical than previously.”