Ahead of the weekend the Pound to Danish Krone exchange rate saw a sharp plunge, brought about during Friday’s Asian session by an apparent fat finger trade. This saw Sterling slump markedly across the board in a matter of minutes, although it was able to rebound away from its lows relatively quickly. Investors were naturally spooked by this decline, particularly as senior EU politicians also offered fresh warnings that single market access cannot be divorced from freedom of movement. With markets continuing to brace for the possibility of a hard Brexit, there was little to offer support to the Pound.
Confidence in the Krone, meanwhile, was boosted by a disappointing US Non-Farm Payrolls report, which showed an unexpected increase in September’s unemployment rate. This weaker showing suggested that the Federal Reserve could be less inclined to raise interest rates before the end of the year, with the resultant weakness of the US Dollar pushing up the Euro and the Krone in tandem. Investors were also encouraged by a modest uptick in Danish industrial production on the year, indicating that the domestic economy remains relatively robust despite recent market turmoil.
Ongoing Brexit Debate Prompted Pound Volatility
Although the Danish trade surplus for August was found to have narrowed on Monday this failed to dampen the appeal of the Krone as the results nevertheless bettered expectations. However, more concerning to investors was the unexpected stalling of domestic inflation in September. Expectations had been for a modest uptick of 0.3% on the year, leading to some disappointment when the data fell short of forecast.
Even so, the GBP DKK exchange rate struggled to capitalise on this weaker data as sentiment towards the Pound remained decidedly bearish. There were fresh warnings from the head of the CBI, who noted that Brexit risked ending the UK’s status as an open economy, as well as mounting concerns over the plans of international banks to scale back their London operations. With domestic data decidedly lacking the Pound was prompted to cede further ground against rivals, with the GBP DKK pairing eventually falling to a fresh six-year low of 8.15.
A rally was in store for the Pound, though, after Prime Minister Theresa May made a U-turn to allow Parliament to debate the terms of Brexit prior to the triggering of Article 50. This offered hope that a hard Brexit scenario could yet be avoided, with Parliament likely to rein in the harder line of rhetoric recently expressed by government ministers. But, the impact of the climb-down proved to be fleeting, with the GBP DKK exchange rate returning to a downtrend before long.
GBP DKK Exchange Rate Forecast to Remain Under Pressure
Developments in the Brexit debate are expected to remain the primary influence on the Pound for the foreseeable future, with Sterling becoming largely divorced from the impact of domestic data. Nevertheless, Friday’s UK construction output results could offer some support to the softened currency, with forecasts pointing towards a strong rebound in the wake of July’s sharp slump in sector activity. Should the figures disappoint, though, the GBP DKK exchange rate is likely to remain on a weaker footing.
Next week’s Danish retail sales figures could encourage the Krone to climb, providing that consumer demand is shown to have strengthened in September. If the Danish economy continues to demonstrate signs of resilience then the appeal of the Krone is expected to improve. On other hand, if markets continue to assess the odds of a 2016 Fed interest rate hike as being higher, then the Krone may be pushed lower.