Danish foreign exchange reserves fall in June, DN likely to cut rate by 10 bp

Danish central bank today published the data on its FX reserve and central bank balance sheet for June. Denmark’s foreign exchange reserve dropped DKK 2.1 billion to DKK 449.6 billion in June. The fall was mainly because of the central bank selling FX, but not for the purpose of FX intervention, noted Danske Bank in a research report.

Government deposits dropped DKK 1 billion to DKK 97 billion in June. The EUR/DKK pair had traded at the high end of the trading range at the start of June, but as in earlier months, DN opted to see through this currency weakness and stay on the sidelines.

The central bank has not intervened in the FX market since January. Therefore, it is showing patience with respect to DKK softness seen in 2019. Even if it has been quiet times for DN recently, it might soon have to get back into action.

“We expect the ECB to cut its deposit rate 20bp in September (along with a restart of QE) and we look for DN to respond by lowering the rate of interest on certificates of deposits 10bp to minus 0.75 percent”, added Danske Bank.