Denmark’s FX reserve falls in July to DKK 463.9 billion

Denmark’s foreign exchange reserve dropped in July by DKK 0.05 billion to DKK 463.9 billion in July. The decline reflects Danmarks Nationalbank’s (DN) net purchase of foreign exchange and net repayments of the government’s foreign debt. The central bank did not intervene in the foreign exchange market and this is the fourth straight month of direct intervention in the FX market from DN’s side.

EUR/DKK has been relatively stable trading within the 7.4350-7.4390 range in July and thus with some distance to the level of 7.4330 where DN was purchasing EUR/DNN in FX intervention in February and March in 2017. It highlights that calm has been restored for EUR/DKK following the need to sell DKK in FX intervention in February and March.

While the EUR has rallied around 5 percent in effective terms since the middle of April, it has failed to outperform DKK over this period. The lack of EUR outperformance vis-à-vis the DKK could be explained by the market pricing DN to mirror a possible rate hike from the ECB next year, which is fair in our view, and solid DKK fundamentals.

“We forecast EUR/DKK will trade at 7.4400 in 1-12M. Furthermore, we look for DN to keep its key policy rate, the rate of interest on certificates of deposits, unchanged at minus 0.65% in 12M”, said Dankse Bank.