Quotes from Danske Bank:
-In the Scandi FX market, EUR/DKK saw the largest day-to-day change on Friday since the introduction of the EUR in 1999, temporarily jumping back above the central rate of 7.46038. The move follows four weeks of intense downward pressure on EUR/DKK, which has forced Danmarks Nationalbank (DN) to make unprecedented FX intervention purchases and cut the rate of interest on certificates of deposits (CD rate) to a record low minus 0.75%.
-It is not clear what triggered the sharp move higher. It could be due to DN lifting its intervention target triggering short-covering, profit taking or a sell-off on concerns that capital controls may be imposed in Denmark to ease inflow following quotes on Reuters from Chairman of the Economic Council, Hans-Jørgen Whitta-Jacobsen, that DN could resort to such measure as a last resort.
-The latter, in our view, should be regarded as unthinkable and thus not be a worry to the market. Despite the sharp move higher on Friday, we primarily remain concerned about EUR/DKK downside pressure we expect DN to cap EUR/DKK in the range of 7.4440-7.4700 and do not expect changes to the CD rate on 12M.
-This week, the central bank will release its latest securities statistics and figures for foreign portfolio investments. This will tell us more about what was behind the significant inf lux of currency into Denmark in January, when the foreign exchange reserves ballooned by DKK106bn.
