The appeal of the Danish Krone has been generally bolstered in the aftermath of the Danmarks Nationalbank’s decision to raise interest rates at the central bank’s first policy meeting of 2016, a move which helped to keep the Krone’s peg to the Euro stable. Sentiment was equally shored up after recent trade balance data was found to have widened further than forecast from 3.9 to 5.4 billion Krone. This suggests that the Danish economy remains in a relatively healthy state of recovery in spite of negative global headwinds and downside pressures, particularly as Industrial Production figures showed a solid improvement on the year in November.
Pundits were equally encouraged by the revelation that the Danish inflation rate had increased from 0.3% to 0.5% on the year in December. A further demonstration of more bullish economic conditions, this stronger showing saw the nation edge further away from the Eurozone’s weakening inflationary outlook, indicating that domestic policymakers are in a better position to manoeuvre against the increasingly dovish European Central Bank (ECB).
While safe-haven demand and a strengthening Euro helped to shore up the Krone further, the Pound Sterling to Danish Krone exchange rate was sharply dented as confidence in Sterling faltered. UK Industrial Production was shown to have retreated further than anticipated both on the year and the month in November, putting a fresh dampener on the likelihood of the Bank of England (BoE) voting to raise interest rates in the near future. Declining manufacturing output was of particular concern as it highlighted the impact of the slowing global economy on demand for British products, suggesting that this could become an increasing drag on UK GDP.
After members of the BoE Monetary Policy Committee (MPC) voted 8-1 in favour of leaving interest rates unchanged last Thursday the GBP/DKK exchange rate largely remained in a slump as the appeal of the Pound diminished. BoE Governor Mark Carney helped to push Sterling lower this week by indicating that policymakers were in no hurry to consider an interest rate hike, prompting speculation that rates could remain unchanged for the remainder of 2016. As Wednesday’s raft of employment data revealed that growth in Average Weekly Earnings had slowed in the three months to November the Pound has continued to weaken against rivals.
Ahead of the weekend, the GBP/DKK currency pair is expected to remain on a downtrend as rising December Retail Sales are likely to bolster the Krone. However, the Krone may experience fresh volatility in the wake of the ECB policy meeting due to its close ties with the common currency.