EUR/DKK: Danish Central Bank intervention the prelude of a rate hike – Nordea

Markets are expecting a rate hike from the Danish Central Bank. Nonetheless, the base case scenario for Jan Størup Nielsen, an analyst at Nordea, is the current policy rate kept unchanged.

Key quotes

“In January the Danish central bank bought DKK 12.1bn to prevent a weakening of the Danish krone against the euro. This is the highest monthly purchase since December 2015 and brings the accumulated purchases over the past four months to a total of DKK 17.8bn.”

“Currently, markets are pricing in an independent Danish rate hike of around 5bp within the next year. However, our baseline scenario is that the Danish central bank keeps the current monetary policy rate spread of 25bp unchanged throughout the year as we expect it to prioritise a reduction of the FX reserves.”

“We find it likely that EUR/DKK will move lower throughout the year as excess liquidity in the Euro area will increase while it will stay relatively low in Denmark.”