Danmarks Nationalbank raised both deposit and lending rate after EUR/DKK rose to the highest level since 2008. Deposit rate was raised from -0.2% to -0.1%, while lending rate from 0.2% to 0.3%, as the Danish central bank seek to strengthen. This is a quick turnaround for DNB as it cut interest rates as recent as July 2012. In comparison, none of the major central banks raised rates during this period, with some even cut rates further in their bid to encourage more lending.
This change in behavior may look flip-flopped, but may be borne out of necessity. Since the crisis, European traders has been liquidating their EUR based assets and seek safe havens elsewhere. DKK and SEK were ideal for this purpose, resulting in both currencies strengthening during this period. As such, DNB is forced into action to weaken its currency against strong overseas demands.
Now the reverse is happening.
With stability (relatively speaking) in the Euro Zone, DKK and SEK based assets have lost their shine, resulting in weakening and hence the need for DNB to step in once again in the opposite direction. Should EUR continue to rise, we could see DKK interest rates progressively rise back to pre-crisis levels.
USD/DKK is showing a bearish Kumo right now, with price trading below the Kumo. The bias is bearish especially when one consider the fact that price has broken lower from the rising trendline, and the recovery rally back on the 1st week of Jan 2013 was thwarted by the Kumo, with the bottom edge of Kumo acting as strong resistance.
Daily Chart is similar with a bearish Kumo in play, and current Kumo providing overhead resistance against any rally. Previous rally from 5.63 to 5.73 has also failed to test the Kumo, underlying the overall bearish sentiment. Though price has been consolidating between 5.58 to 5.63.
It is important to note that DKK is actually strengthening against USD despite weakening against EUR. Further increase in interest would only serve to push USD weaker against the Krone in 2013.
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