Danish Central Bank Continues Fighting the Market

The latest central bank data show pressure on Denmark’s euro peg isn’t abating as policy makers continue to dump kroner on the market at an unprecedented pace.

Net flow data published on Tuesday show the Danish central bank sold $2.1 billion in kroner in a single day, according to estimates provided by Svenska Handelsbanken AB.

“If we see the central bank continuing to sell kroner at this pace in the next few days, we will probably get a rate cut this week,” Rasmus Gudum, an economist at Handelsbanken in Copenhagen, said by phone.

The development follows signs earlier this week that demand for kroner was easing after central bank data suggested a small capital outflow. But the latest figures reveal that was likely to have been a temporary blip as Denmark remains under pressure to fight back speculators, according to Handelsbanken.

Governor Lars Rohde has cut Denmark’s deposit rate four times this year, bringing it to a record low of minus 0.75 percent. That matches the level in Switzerland, where a Jan. 15 decision to abandon ties to the euro fanned conjecture Denmark may be next. Pressure on the krone is also growing as record European Central Bank stimulus devalues the euro.

“If the Danish central bank uses the rate tool, we think they will want to send a clear message to the market and cut by as much as 25 basis points so we get a clean minus 1 percent deposit rate,” Gudum said.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza