Danish foreign exchange reserve rises in May, DN refrains from intervening in forex market

Danish central bank published May’s forex reserve data and central bank balance sheet. The FX reserve rose DKK 1 billion to DKK 468 billion in May. The Danmarks Nationalbank refrained from intervening in the forex market. Government deposits were the same at DKK 182 billion in May. EUR/DKK eased in May after increased political uncertainty in Italy.

But, it remained well above the level of 7.4330-40, where DN sold DKK in FX intervention in February and March last year. Therefore, DN remained one the side lines in May in the midst the higher demand for DKK, noted Danske Bank.

Solid public finances remain a point of focus in Denmark because of the implications both for the DKK fixed income and money markets. Government deposits came in at DKK 182 billion in the month.

This highlights the surprise rebound in government finances which on the one hand underpins the outlook for the DKK fixed income market, but on the other hand risks keeping DKK liquidity too tight which tends to push short-term DKK rates and EUR/DKK FX forwards higher.

“We forecast EUR/DKK at 7.4450 on 1-6M and 7.4425 on 12M and for DN to keep the key policy rate unchanged at minus 0.65% on 12M”, added Danske Bank.

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