Nordea’s Chief Analyst Jan Størup Nielsen notes that Nationalbanken did not intervene in July to support Denmark’s fixed exchange rate policy, after a small purchase of kroner in June. He argues the recent weakening of the Danish krone against the Euro reflects shifts in domestic corporate demand and expects the EUR/DKK interest rate differential to stay unchanged for an extended period.

Danish krone weakness without fresh intervention

“Over the past month, there has been no need to purchase kroner in support of Denmark’s fixed exchange rate policy.”

“The July figures were awaited with particular interest, as Nationalbanken in June purchased DKK 0.7 billion to curb a further weakening of the Danish krone against the euro.”

“The absence of intervention in July supports our view that the weakening of the Danish krone against the euro is due to changes in the underlying demand for Danish kroner among domestic non-financial corporates.”

“Given this circumstance, and given that Nationalbanken, in our assessment, will, going forward, seek to create a more symmetric fluctuation band in EUR/DKK around the central parity, the current interest rate differential between Denmark and the euro area of -0.4 percentage points will in all likelihood remain unchanged for an extended period.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)