The Pound to Danish Krone exchange rate dropped last week and continued to slide on Monday as investors reacted to the results of Britain’s 2017 general election. A hung parliament means a weaker government one way or another, which has worsened Brexit negotiation jitters. GBP/DKK dropped from around 8.44 to a 2017 low of 8.39 on Monday.
Pound (GBP) Weakens on UK Political Uncertainty
Since the UK general election ended with a ‘hung parliament’ last week, Pound exchange rates have plunged and seen poor performance overall.
Instead of the Conservative party strengthening as investors expected, UK Prime Minister Theresa May’s plan backfired and the Tories lost seats, leaving them unable to form a majority government.
May has indicated she will lead a minority government with the informal backing of Northern Ireland’s Democratic Unionist Party (DUP). However, analysts have called this coalition unstable and others have argued that May is unlikely to remain the Conservative leader much longer due to her election miss.
The uncertainty surrounding the strength and lasting power of the new government, as well as how it will fare in highly important Brexit negotiations beginning in the coming weeks, has meant the Pound is currently unappealing.
Danish Krone (DKK) Boosted by Eurozone News
As the Danish Krone is still pegged to the Euro, the currency was little effected by Monday’s Denmark Consumer Price Index (CPI) results for May, which failed to meet expectations.
Inflation was projected to slip from 1.1% to 0.9% year-on-year, but instead dropped to 0.8%.
Investors instead focused on the weekend’s French legislative election news. After the first round of the legislative elections ended with a strong 32.32% win for President Emmanuel Macron’s en Marche! (LREM) party, market confidence in Macron has risen.
Markets were previously anxious that as Macron’s party was new, it would see limited support in legislative polls. However, projections for the second round (next Sunday) see Macron’s party on track for a massive majority of between 415 and 455 seats.
This has increased market confidence that Macron will have the influence he needs to strengthen France’s position in the Eurozone.
GBP/DKK Forecast: Pound Jitters to Persist
While key UK data will be published throughout the week, investors are unlikely to buy heavily into the Pound with political uncertainties still so high.
Many analysts continue to call the current government plan unstable and further developments are sure to influence the Pound.
As a result, Tuesday’s UK Consumer Price Index (CPI) stats from May, Wednesday’s April employment data and Thursday’s May retail sales are likely to be less influential than usual.
Thursday will also see the Bank of England (BoE) hold its June monetary policy decision. If the bank takes a more dovish than expected tone due to recent economic and political uncertainty, the Pound to Krone exchange rate will weaken.
As for the Danish Krone, it is likely to react to this week’s Eurozone news. Key Eurozone data includes economic sentiment surveys due Tuesday and final May inflation stats due from Wednesday through Friday.