Demand for the Danish Krone was boosted by Denmark’s March trade surplus at the start of last week, with the figure strengthening from 1.9 billion to 8.1 billion. This encouraged greater confidence in the outlook of the domestic economy, indicating that slowdown pressures had been more limited in recent months. Although this was accompanied by a more disappointing Current Account result the impact on the Krone was largely positive. As a result the GBP/DKK exchange rate dipped from 9.4471 to 9.3968 in the immediate aftermath of the data, although the pairing soon began to regain ground.
The appeal of the Pound, meanwhile, was somewhat muted by the latest Halifax House Price report. Prices slowed more sharply than anticipated in the three months to April, raising suggestions that the domestic housing market is coming under increasing pressure from ‘Brexit’ uncertainty. However, as there have been some concerns expressed by the Bank of England (BoE) over the hotness of UK house prices this weaker showing did not do much to soften Sterling on Monday.
Krone Diminished by Weak Danish Inflation
Investors were generally unimpressed to find that the Danish inflation rate had remained stagnant on the year in April, weakening the Krone further on Tuesday. This disappointing result saw optimism in the outlook of the domestic economy decline sharply, even as confidence in the neighbouring Eurozone was boosted by progress towards the conclusion of the Greek bailout review.
Ahead of the Bank of England’s (BoE) May policy meeting the GBP/DKK exchange rate ceded ground, driven lower by speculation that one or more policymakers could vote for an interest rate cut. However, as the Monetary Policy Committee (MPC) ultimately made a unanimous decision to hold rates unchanged the Pound saw a strong rally o
n Thursday morning.
A downward revision of the central bank’s growth forecasts and Governor Mark Carney’s comment that a vote to leave the EU could prompt a technical recession did not hamper the appeal of Sterling. In fact, investors appeared to be encouraged by the stark ‘Brexit’ warnings of the BoE, and later the International Monetary Fund (IMF), with hopes that these high-profile interventions could prompt voters to swing behind the ‘Remain’ camp.
Greek Worries Spill over to Weigh on Danish Krone
Markets showed increasing jitters over the situation in Greece on Monday, meanwhile, as the final raft of austerity measures mandated by creditors are due to pass before parliament at the weekend. Given the extremely narrow majority of Prime Minister Alexis Tsipras there are concerns that the bill could be defeated, throwing the chances of an imminent release of bailout funds into jeopardy.
The Euro continued to drag on the Krone when the IMF indicated that it was unwilling to support the current bailout program without Greece being given debt relief until 2040. As other creditors are likely to baulk at the suggestion worries naturally intensified, dimming the appeal of the single currency.
After the UK’s Consumer Price Index demonstrated a more pronounced dip in inflation than anticipated the GBP/DKK currency pair was knocked back from a three-week high of 9.5328. As domestic inflation fell from 0.5% to 0.3% on the year the odds of the BoE opting to raise interest rates before the end of the year declined. Nevertheless, as the latest ICM phone poll indicated that the ‘Remain’ camp had edged further ahead of ‘Leave’ in the last month the outlook of the Pound remained optimistic.
Friday’s Danish Retail Sales figures could bolster the Krone, however, as forecasts suggest that April saw a return to growth. Following March’s sharp -3.1% contraction on the year markets will be hoping to see a more positive number. Should negative headwinds have weighed too substantially on domestic demand, though, the Krone is likely to retreat as its appeal declines further.