The Swiss National Bank’s (SNB) recent decision to drop its 1.20 peg with the Euro caused extreme turmoil in the currency market, and now another central bank is struggling to maintain its cap with the common currency.
Denmark’s central bank, Nationalbanken, has announced that it purchased the equivalent of 106.3 billion Danish Kroner of foreign currency during January in an attempt to weaken the domestic currency and maintain its peg with a bearish Euro.
The Euro posted widespread declines in the wake of the SNB announcement and proceeded to fall further still after the European Central Bank (ECB) outlined an over 1 trillion Euro quantitative easing scheme.
The action taken by Nationalbanken was a direct response to the pressure this Euro downturn has put on its cap of 2.25% above or below 7.46038 Kroner.
Industry experts have asserted that the Danish central bank will have to continue intervening in the currency market to limit the Kroner gains, and may even have to cut the deposit rate by a further 25 basis points.
Nationalbanken’s announcement had little impact on the EUR/DKK exchange rate as demand for the Euro was undermined by rumours surrounding the Greek debt renegotiation, although the Danish Krone did drop against the Pound.
The Krone could experience additional movement before the end of the week as Denmark publishes industrial production data for December.
Industrial production is believed to have risen by 0.21% on the month in December following an increase of 0.1% in November.
This would take the annual figure from -1.36% to -0.88%.
A better-than-expected result could push the Kroner higher still against the Euro.
German Industrial Production data may also have an impact on EUR/DKK trading.
The Pound Sterling to Danish Krone exchange rate was trading in the region of 9.9549
The Euro to Danish Krone exchange rate was trading in the region of 7.4433