Pound to Danish Krone (GBP/DKK) Exchange Rate Falls from Best Levels in a Month
On Tuesday, the Pound to Danish Krone (GBP/DKK) exchange rate fell back from its best levels since early December thanks largely to some impressive European confidence stats.
The Danish Krone (DKK) is pegged to the Euro (EUR), so last week’s GBP/DKK advances were partially due to market uncertainty about the European Central Bank’s (ECB) policy outlook. The interbank rate advanced from 8.38 to 8.43.
This week GBP/DKK continued to strengthen thanks to market hopes for a ‘soft Brexit’ as well as ECB uncertainty, but Sterling has since dipped from its best levels.
ZEW’s January economic sentiment surveys came in higher than forecast in all major prints, indicating that analysts were even more optimistic about the Eurozone outlook than expected.
German economic sentiment rose from 17.4 to 20.4 and current conditions jumped from 89.3 to 95.2. The Eurozone’s overall economic sentiment index climbed from 29 to 31.8, beating the expected 29.7.
Denmark’s latest consumer confidence data was strong too, rising from 6.5 to 8.2.
Pound (GBP) Exchange Rates Slip despite Optimistic Public Borrowing
Tuesday’s UK data was better than expected too, but was too low influence to help the Pound (GBP) to hold its ground at monthly highs against the Danish Krone.
December’s public sector net borrowing results came in at £-0.98b, improving from November’s £-6.65b which itself was revised higher from £-8.12b.
The data was good news for Britain’s Treasury and indicated that UK Chancellor Philip Hammond was on track to meet his fiscal targets for the 12 months leading into March 2018.
The Confederation of British Industry’s (CBI) latest data was decent too and helped to limit Sterling’s losses against the Euro and Krone. CBI’s Q1 business optimism index rose from -11 to 13 while January’s industrial trends orders slipped to 14 rather than the forecast 12.
Danish Krone (DKK) Exchange Rates Strength Limited by Central Bank Uncertainty
The Pound to Danish Krone’s exchange rate’s potential for losses will be limited ahead of Thursday, as investors will be hesitant to make big movements on the Euro (EUR) or Euro pegged currencies like the Krone until after this week’s European Central Bank (ECB) meeting.
Investors are uncertain what kind of tone the ECB will take in its upcoming meeting, due to mixed messages from the bank’s key officials.
The meeting minutes indicated that the ECB may be changing its forward guidance language in the coming months but bank officials have expressed concern over the Euro’s bullish reaction to the minutes.
This has left investors uncertain of the tone that will be adopted on Thursday.
Pound to Danish Krone (GBP/DKK) Forecast: UK Wage Report in Focus
The Danish Krone’s movements are likely to be limited until Thursday’s European Central Bank (ECB) policy decision, so until then the Pound to Danish Krone (GBP/DKK) exchange rate will likely be influenced by UK data.
Wednesday will see the publication of Britain’s highly anticipated November job market report, which will include employment change stats, the unemployment rate and wage growth results.
The biggest focus for investors will be wage growth and markets will be hoping to see signs that wage growth is catching up to UK inflation, which surged last year.
Due to the difference between wages and inflation, British households have been suffering a pay squeeze, which has added to Bank of England (BoE) dovishness recently.
As a result, if UK inflation beats expectations it could boost bets that the BoE will take a more hawkish stance which would make the Pound more appealing too.
On the other hand, poor wage data could cause GBP/DKK to fall further from its monthly highs.
If Thursday’s European Central Bank decision hints that the bank is preparing to take a more hawkish tone, this would also cause GBP/DKK to lose some of its recent gains.