3 Feb 2015
Denmark might surprise again to keep EUR/DKK peg intact – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, explains that with Denmark’s EUR/DKK peg under pressure, the DNB might resort to further policy surprises.
Key Quotes
“Denmark also used the element of surprise yesterday in announcing that bond sales will be suspended until further notice.”
“The country, which is well funded, adopted this measure as an alternative to QE – both are aimed at depressing long-term interest rates and both should have a negative impact on the currency.”
“Since the SNB walked away from its EUR/CHF1.20 floor in mid-January the DNB’s EUR/DKK ERMII peg has been under pressure.”
“The DNB has an advantage over the SNB in that the DKK is not a safe haven currency.”
“Irrespective of Denmark’s strong fundamentals, there is insufficient liquidity in the DKK for it to stand as a safe haven asset. In principle this means that it should be easier for the central bank to chase away unwanted demand for the DKK through the use of negative interest rates and by keep yields on longer term paper low.”
“That said, Denmark has already been forced to cut its key interest rate 3 times this year and it may yet have to pull out further policy surprises to keep its currency peg intact.”
Key Quotes
“Denmark also used the element of surprise yesterday in announcing that bond sales will be suspended until further notice.”
“The country, which is well funded, adopted this measure as an alternative to QE – both are aimed at depressing long-term interest rates and both should have a negative impact on the currency.”
“Since the SNB walked away from its EUR/CHF1.20 floor in mid-January the DNB’s EUR/DKK ERMII peg has been under pressure.”
“The DNB has an advantage over the SNB in that the DKK is not a safe haven currency.”
“Irrespective of Denmark’s strong fundamentals, there is insufficient liquidity in the DKK for it to stand as a safe haven asset. In principle this means that it should be easier for the central bank to chase away unwanted demand for the DKK through the use of negative interest rates and by keep yields on longer term paper low.”
“That said, Denmark has already been forced to cut its key interest rate 3 times this year and it may yet have to pull out further policy surprises to keep its currency peg intact.”