Danish Krone: Record low against Euro tests central bank stance – Danske Bank

Danske Research Team notes that EUR/DKK hit a new historic high at 7.4739, with the Danish central bank refraining from FX intervention in May. They argue that while the bank shows patience with upward pressure, continued strength would likely prompt action to cap EUR/DKK. The team maintains that the chance of a 10bp unilateral Danish rate hike over the coming year is low.

Central bank patience as pair hits record

"In Denmark, the Danish central bank did not intervene in the FX market in May, where EUR/DKK hit a new historic high of 7.4739. On the one hand, the central bank continues to show great patience with respect to the upwards pressure on EUR/DKK, which has since risen to 7.4742."

"On the other hand, the upwards pressure persists and if it continues the central bank will likely opt to step in and cap EUR/DKK. Overall, it supports our call that the chance of a 10bp unilateral rate hike in Denmark the coming year is low."

"Also in Denmark, a new Danish government is finally in place after the March election. It has presented a programme with substantial tax cuts, especially on VAT on food. The VAT will lower inflation substantially when it happens, but that will not be this year and probably not 2027 either. "

"In the meantime, previously announced cuts to food taxes are cancelled and fuel taxes are not cut, so no extra inflation relief this year. The programme is more concrete on tax cuts and expense increases than on the financing, but that is not unusual for this type of announcement and does not in itself imply increased government borrowing."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)