As the odds of a June interest rate hike from the Federal Reserve dwindled away the Danish Krone made some strong gains against rivals. Confidence in the world’s largest economy was weakened on Friday by a surprising poor US Non-Farm Payrolls report, which showed just 38,000 new jobs added to the economy rather than the 160,000 forecast. This bearish result saw the likelihood of the Fed opting to raise interest rates in the near future drop sharply alongside the US Dollar, to the benefit of the Krone.
Confidence in the Pound, meanwhile, weakened on the back of a round of ‘Brexit-supportive opinion polls. With an increasing number of voters appearing to swing towards the ‘Leave’ campaign investors were naturally spooked, prompting Sterling to fall across the board on Monday morning. Markets had not been overly inclined to price in a particularly high possibility of a vote to leave the EU prior to this, resulting in some sharp losses.
Comments from Fed Chair Janet Yellen at the start of the week put talk of an imminent interest rate move completely to bed, as the policymaker acknowledged that June was no longer on the table. While Yellen maintained a somewhat hawkish tone with regards to the possibility of a rate hike later in the summer this was not enough to encourage a resurgence in the ‘Greenback’. As a result the GBP/DKK exchange rate extended its slump to a three-week low of 9.4190.
Substantial Support Remained Lacking for the GBP/DKK Exchange Rate
During Tuesday’s Asian session the Pound saw an unexpected rebound against rivals, a move which was later attributed to an erroneous ‘fat finger’ trade. While the strong surge of the GBP/DKK exchange rate was largely unfounded the pairing nevertheless maintained some of its gains throughout the day. Investors also took some encouragement from a stronger-than-expected BRC Like-For-Like Sales figure, which indicated that consumer demand had not been adversely impacted by referendum uncertainty in May.
Demand for the Krone picked up later on Tuesday, however, in response to the latest Industrial Production figures. Output was found to have markedly improved on the year in April, climbing from -2.7% to 2%. This offered some encouragement for the outlook of the Danish economy, suggesting that the second quarter of the year got off to a relatively strong start for the country. Robust Eurozone data equally benefitted the Krone, although markets remained concerned by the chances of further monetary loosening to come from the European Central Bank (ECB).
Although the latest UK Industrial and Manufacturing Production figures strongly bettered expectations on Wednesday this failed to offer particular support to the GBP/DKK exchange rate. Industrial output rose 1.6% on the year in April, while manufacturing production jumped 2.3% on the month. This offered further indication that the UK economy has not been adversely impacted by ‘Brexit’ uncertainty, although there remain concerns over the longer-term outlook of the sector. Consequently the GBP/DKK currency pair continued to trend lower in the region of 9.4850.
Krone Forecast to Strengthen on Higher Inflation
Later in the week the Danish Inflation Rate for May is likely to provoke Krone volatility, with expectations pointing towards an uptick from 0.0% to 0.1%. Strengthening inflationary pressure would be a welcome sign for the Krone, somewhat relieving pressure on domestic policymakers. Any downside surprise, however, would give the GBP/DKK exchange rate strong grounds for a rally.
Friday’s BoE/TNS inflation forecast for the next twelve months from May could improve the appeal of the Pound, providing the prediction remains more optimistic. Even so, markets look likely to remain preoccupied with developments connected to the EU referendum for the next fortnight, with any shift in the opinion polls expected to trigger increased Pound movement.