It’s been a rugged advance for the GBP/DKK exchange rate over the past seven days, although Pound Sterling now looks on track to close not much higher than the week’s opening levels.
DKK GBP Weakens; Denmark Current Account Surplus Under Threat from Trump
Donald Trump’s victory in the US elections could have serious consequences for Denmark’s economy; a prospect that has kept the Danish Krone edging lower over the past few days. Trump is fiercely anti-trade, claiming that free trade deals have cost the US jobs and crippled the manufacturing sector.
Exports account for around half of Denmark’s GDP, with Nordea estimating that a more protectionist attitude from the US could cause 10,000 job losses.
According to Dankse Bank;
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Donald Trump’s view on free trade could be a threat to the Danish shipping industry (which makes up a third of Denmark’s total current account surplus). The election of Donald Trump could therefore have a negative impact on Denmark’s external balance, which would create a fundamental headwind for DKK over the long term.
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Falling trade revenue would hit the current account surplus, taking it down to 6% of GDP. That is still a remarkable figure, but the fall would see Denmark’s central bank having to battle smaller foreign direct investment inflows. The appetite from foreign investors for domestic assets saw significant demand for the Krone, causing the Denmark central bank to cut interest rates to -0.75% in order to keep DKK pegged to the Euro.
Anticipation of higher spending in the US once Trump takes power is driving up bets on inflation and rate hikes, increasing the yield on US bonds. These threaten to undermine demand for Danish assets, which investors see as a safe-haven due to their prized AAA rating, prompting a withdrawal of assets from the country. This would see asset prices fall in the short-term. DKK GBP exchange rates would also fall as investors looked for more profitable assets in the UK.
While the Pound may have made strong gains over the past few days, GBP DKK has slumped today after the German Finance Minister Wolfgang Schäuble warned that the UK would have to honour its spending commitments even after it leaves the European Union. With some projects scheduled many years into the future, this could mean the UK has make contributions to the EU budget worth billions of Pounds per year for a decade or more after Brexit.
GBP DKK Exchange Rate Forecast; UK Budget and Trump Trade Policies in Focus
Chancellor Philip Hammond is scheduled to give his first budget on Wednesday. This will be of significant interest to investors, who are waiting to see if Hammond will increase fiscal stimulus measures in the wake of the UK’s Brexit vote. Rather appositely, Tuesday will see the release of the latest government borrowing figures. Another increase in public deficits would weaken GBP/DKK exchange rates as it would limit Hammond’s ability to be proactive in upping spending measures.
Tuesday sees the release of the only economic data from Denmark in the coming week. Consumer confidence is predicted to have climbed sharply in November, although October’s retail sales data is expected to show a marginal decline.
Speculation over policy measures in the US could be the most prominent driver of the Denmark Krone, however. Should the likelihood that Trump will act on his anti-trade leanings continue building, GBP DKK exchange rates are likely to advance further as investors pull out of Krone-denominated assets.