No FX intervention by DN in April on weaker DKK against EUR

Denmark’s central bank, Danmarks Nationalbank, had actively sold DKK in February and in March as part of its ongoing defence of the peg. But the DKK depreciated a bit against the euro in April, and thus the central bank did not feel the need to intervene in the currency market.

The Danish krone was in strong demand in the first quarter due to intensifying jitters ahead of the French presidential election, according to a Nordea Bank research report. The election jitters are expected to have prompted international investors to increase demand for safe Danish assets. Danish investors might have also repatriated investments from or raised their currency hedge on investments in the euro area because of the increased volatility, stated Nordea.

With Emmanuel Macron being victorious in the first round of the presidential election, these uncertainties have greatly been eliminated from the markets. Thus, the DKK has depreciated a bit against the euro and the central bank no longer has to intervene in the currency market.

In spite of the weakening of krone in April, the DKK continues to trade below 7.44 against the euro. This is viewed as a strong level in a slightly longer perspective and quite lower than the central parity. The DKK is expected to continue to stay strong against the euro for an extended period. This is mainly due to Denmark’s very substantial current account surplus, which creates underlying pressure for a stronger Danish krone.

“We expect that the central bank will have to keep interest rates lower than the ECB in order to mitigate this appreciation pressure on the Danish krone”, added Nordea Bank.