Pound/Danish Krone Exchange Rate Volatile as EU Exit Discussions Reach Deadlock

The Pound to Danish Krone exchange rate advanced on Friday, but Sterling remains pressured by fears for the UK’s outlook post-Brexit.

GBP/DKK hit a one-month-low on Thursday, but later surged. GBP DKK is currently trending above the level of 8.34.

Pound’s Brexit-Inspired Strength is Limited

Demand for the Pound has been boosted by the latest Brexit developments, but too many uncertainties remain for the British currency to hold its best levels.

Overnight, EU chief negotiator Michel Barnier indicated that the EU could help Britain to agree on a post-Brexit transitional deal.

This would help to avoid a hard Brexit ‘cliff-edge’ scenario and help Britain’s economy to ease into life without the EU.

On top of this, EU officials have reasserted that they are preparing for UK-EU trade talks.

Sterling saw a jump in reaction to these statements, which boosted market hopes for a softer Brexit.

However, the currency’s gains were limited by persistent concerns about the ‘deadlock’ in Brexit negotiations.

Without progress on Britain’s financial commitments to the EU, potential trade talks could continue to be pushed back. These uncertainties kept pressure on the Pound.

Danish Krone Strengthens as Eurozone Political Fears Ease

Over the past seven days the Euro-pegged Danish Krone has been largely reacting to developments in a raging independence debate between Catalonia and Spain.

As Catalonia’s leader indicated on Tuesday that he would rather negotiate with Spain than attempt to declare independence, market anxiety has faded and the Danish Krone advanced.

Investors are hoping that Catalonia will remain part of Spain, the Eurozone’s fourth biggest economy, even if Spanish Prime Minister Mariano Rajoy has to take direct control of the region.

Cooling political jitters have helped the Danish Krone and Euro become more appealing, and investors have largely overlooked the latest cautious European Central Bank (ECB) comments.

ECB President Mario Draghi indicated on Thursday that Eurozone interest rates would remain low even after quantitative easing (QE) has been withdrawn.

Denmark’s August unemployment rate improved from 4.5% to 4.4%, but this had little impact on the Pound to Danish Krone exchange rate.

Bank of England to Drive GBP/DKK Exchange Rate

Bank of England (BoE) speculation is likely to drive Pound to Danish Krone exchange rate movement in the coming week, as key UK ecostats are set for publication.

Tuesday will see the publication of Britain’s September Consumer Price Index (CPI) results, followed by August labour market results on Wednesday.

If UK inflation is higher than expected, this will put pressure on the Bank of England to tighten UK monetary policy within the next few months.

The BoE has also issued warnings on wage growth recently, so strong wage data could boost BoE tightening bets and cause Sterling to strengthen.

Any signs of progress in Brexit talks could also lead to a burst of Sterling demand.

As for the Danish Krone, next week’s Eurozone inflation stats and Danish retail sales data could influence GBP DKK movement slightly.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon