DN refrained from intervening last month – Danske Bank

Sverre Holbek, Senior Analyst at Danske Bank, assessed the prospects for the Danish central bank for the next months as well as views for EUR/DKK.

Key Quotes

“Yesterday’s FX reserves figures from Danmarks Nationalbank (DN) showed that the central bank did not intervene in the FX market in September as EUR/DKK traded well within the historically preferred trading range for DN of 7.42-7.47”.

“Over the coming 12 months, we look for EUR/DKK to trade around the present level, i.e. at the lower end of the historical trading range, and forecast it at 7.4425 in 3-12M. At this level, we look for DN to remain on the sidelines, meaning we forecast the key policy rate – the rate of interest on certificates of deposit – will stay unchanged at minus 0.65% in 12M”.

“Political risk in Europe has been a key driver of downward pressure on EUR/DKK in recent years. Over the coming year, there are a number of important political events in Europe, e.g. the constitutional referendum in Italy, negotiations of the UK’s withdrawal from EU membership and elections in France and Germany”.

“If concerns in the market over political stability in Europe start to re-emerge, it could spur demand for DKK and push EUR/DKK lower. We look for DN to cap the EUR/DKK lower bound around 7.4350”.