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Swimming against the tide.
Denmark’s central bank sold DKr4.7bn (€600m) to weaken the krone in February, its latest statistics showed today, confirming suspicions that it’s working hard behind the scenes to keep in check its currency’s peg to the euro.
The intervention is the biggest since last June, signalling that the krone is at the upper limit of the central bank’s tolerance.
Says Jan Størup Nielsen at Nordea, in a note that you can read here:
If demand for Danish kroner continues to increase, the central bank will keep selling Danish kroner in the FX market, boosting its currency reserves. On the other hand, we do not expect the central bank to make an independent rate cut due to the pressures for a stronger krone.
Selling euros and buying the krone in response to eurozone political stress is seen as a potentially popular trade this year, as it has been in previous iterations of the euro crisis.
Denmark maintains a very tight trading range for the euro against the krone, in a peg regime that has lasted for decades and that the central bank has described as a “cornerstone” of its economic policy. It sells its domestic currency when the krone gets too strong and buys it when it’s too weak.