Dovish comments from Bank of England Governor Mark Carney helped to push the Pound Sterling to Danish Krone exchange rate to a one-year low of 9.6277, as the policymaker suggested that the BoE was unlikely to raise interest rates in the near future. With increasing concern over the uncertainty of the UK’s European Union membership referendum, the appeal of the Pound was generally dented last week. However, despite average weekly earnings slowing further than expected in the three months to November, the GBP/DKK pairing soon returned to an uptrend as increasing market volatility weighed on the Krone.
Prospect of Fresh ECB Easing Weighed on Krone
The Danish currency was prompted to soften after the first European Central Bank rate decision of 2016, despite policymakers failing to introduce fresh monetary loosening. ECB President Mario Draghi adopted a decidedly dovish tone with regards to the future course of the central bank’s monetary policy, reiterating a willingness to employ further easing measures as necessary to support the Eurozone’s economy. Despite some scepticism from investors that Draghi would ultimately live up to his word, following the ECB’s disappointment of market expectations in December, this nevertheless saw the Euro substantially weakened. Naturally this also prompted the Krone to trend lower as it tracked the single currency.
Traders were equally discouraged from favouring the Krone as January’s Consumer Confidence Index revealed a sharper decline in confidence than anticipated. Consumer sentiment slumped from 6.1 to 4.6 at the start of the year, an indication that wider negative global trends have been having a detrimental impact on the Danish economy. As this was followed up on Friday by far weaker-than-expected December Retail Sales data the impression of the domestic economy’s health seems less than positive at present.
Krone Dented as PBoC Market Intervention Boosted Risk Appetite
Although fresh market volatility and increasing disregard for Draghi’s dovishness saw the Krone bolstered once more at the start of the week, the GBP/DKK currency pair began to recover ground on Tuesday. Despite a 6.4% plunge on the Shanghai Composite Index trader risk appetite was shored up as a result of the People’s Bank of China (PBoC) intervening to inject additional liquidity into the domestic market. The appeal of the Pound was also improved by fresh comments from BoE Governor Carney, who undermined some of the dovishness of his previous speech with regards to the expected timing of the central bank’s first interest rate rise.
DKK Strengthens with Expectations for Cautious FOMC Meeting
Nevertheless, the GBP/DKK exchange rate was unable to maintain its gains for long as ‘Brexit’ fears continue to drive investors away from the softening Pound. Strengthening German Consumer Confidence helped to drive up the Euro, and consequently the Krone, on Wednesday as the improvement suggested that the German economy was shaking off negative global sentiment. As the Federal Open Market Committee (FOMC) is expected to take a more dovish view on monetary policy at its January meeting the Krone may be prompted to trend higher on the back of a weaker US Dollar.
Thursday’s Danish Business Confidence is unlikely to particularly encourage demand for the Krone, as sentiment is forecast to have weakened on the month from -7 to -8. However, as the fourth quarter UK GDP is expected to show that the domestic economy slowed at the end of 2015 the GBP/DKK exchange rate may struggle to capitalise on any ensuing Krone softness.