The Danish Krone (DKK) advanced against the Pound Sterling (GBP) and US Dollar (USD) on Monday as it followed the Euro (EUR) higher.
The single currency’s recent rapid decline was deemed as overdone by economists, allowing the Euro to edge away from multi-year lows against a number of major peers. As the Danish Krone is pegged to the single currency, it too moved higher.
Last week, saw the Krone tumble to a 12-year low against the US Dollar, and slide to its lowest level since 2007 against the Pound Sterling. The cause of the currency’s steep fall was the knock on effect of the European Central Bank (ECB) launching its quantitative easing programme and the announcement by the Danish central bank that it was committed to defending the Krone’s peg to the Euro.
Since the ECB announced its €60 billion a month bond-buying programme, the Krone’s peg to the Euro has come under significant strain. To defend the peg, which has been in place since 1982, the Danish central bank cut its deposit rate four times in the space of three weeks in February. It has also intervened heavily in the currency markets, buying 106.3 billion Krone in the first month of the year.
In addition to the rate cuts and foreign exchange interventions, Denmark has taken the step to suspend the issuance of government bonds. The move is in order to deter foreign investment in Danish assets that would strengthen the Krone and put the peg in danger.
Disappointing economic data out of the USA allowed the Krone to move higher against the ‘Greenback’ on Monday. According to official data, industrial production in the world’s largest economy rose by just 0.1% in February, falling short of expectations for a 0.2% gain.
Manufacturing output declined by 0.1% as car production fell sharply. The report suggests that economic growth could slow in the first quarter. A separate report also showed that manufacturing activity growth in New York State slowed in March for a second straight month as new orders fell.
The softer than forecast data and concerns over the strength of the US Dollar caused investors to fret that the Federal Reserve will be cautious about raising interest rates this year and increased speculation that policy makers will be more dovish at Wednesday’s policy meeting.
The only piece of economic data due for the Danish Krone is Friday’s retail sales report, which is forecast to show that sales fell from 2.3% to 1.9% in February.
The Pound Sterling to Danish Krone exchange rate was trading in the region of 10.4430