DKK likely to be stable in future, central bank to keep rates on hold for longer period

Denmark’s central bank did not intervene in the foreign exchange market in August, the second straight month of non intervention. Since the start of August, the Danish krone has been weakening against the euro, consistent with higher excess liquidity in the money market and probably certain unwinding of currency hedges following Brexit.

The Danish krone is expected to be largely stable in the future, noted Nordea Bank in a research report. The current interest rate differential to the euro area seems to be the right one to keep a stable krone exchange rate about 7.44. This is possibly slightly firmer as compared to previously, added Nordea Bank.

Since currency reserves are also slightly lower than the recent years’ average levels, it is possibly the optimal level for the bank at the moment. The central bank’s policy rate is expected to be maintained at -0.65 percent until the end of 2017, according to Nordea Bank.