Pound Sterling to Danish Krone Exchange Rate Forecast: GBP/DKK Losses Could Worsen on ECB Hawkishness

Pound to Danish Krone Exchange Rate Falls to Weekly Low on European Central Bank (ECB) Speculation

Speculation that the European Central Bank (ECB) is planning to withdraw its aggressive quantitative easing (QE) schemes towards the end of the year has bolstered demand for the Euro (EUR) pegged Danish Krone (DKK), pulling the Pound to Danish Krone (GBP/DKK) exchange rate lower.

Since opening the week at the interbank level of 8.52, GBP/DKK has generally trended lower. The pair failed to hold its ground as the Euro (EUR) strengthened and at the time of writing was trending near a weekly low of 8.45.

Sterling (GBP) briefly recovered on Tuesday due to stronger-than-expected UK services data, but demand for the Euro and the Euro-pegged Danish Krone has been steadily building on central bank optimism.

This week, the ECB’s Chief Economist Peter Praet signalled that the bank was ready to start discussing the withdrawal of its longstanding quantitative easing (QE) scheme. This reassured markets that the bank was not worried about Eurozone politics or economic data.

Pound (GBP) Exchange Rate Fails to Hold Ground as Brexit Jitters Persist

Uncertainty about a perceived fissure in the UK government over Prime Minister Theresa May’s plans for EU customs union membership hit headlines on Thursday and left the Pound (GBP) unappealing.

Reports emerged that UK Brexit Secretary David Davis would resign if Theresa May published a backstop plan regarding customs union membership.

The backstop plan was an attempt to resolve the issue of the Irish border in the event that Brexit occurred without a more bespoke deal between the UK and EU.

With Brexit uncertainties taking focus again, the solid UK PMI stats seen over the last week were not enough to keep the Pound appealing.

This has made it easier for a resurgent Euro to push the Pound to Danish Krone (GBP/DKK) exchange rate lower.

Danish Krone (DKK) Exchange Rates Supported by European Central Bank (ECB) Speculation

Political jitters from Italy and Spain have kept pressure on Danish Krone (DKK) trade in recent weeks. As the Krone is pegged to the Euro (EUR), it rises and falls as the Euro does.

Investors had been concerned that the political shifts would cause enough market uncertainty to negatively affect the Eurozone’s economic outlook.

There was also concern that Italy’s new populist coalition would worry the European Central Bank (ECB), due to its controversial spending plans.

However, ECB Chief Economist Peter Praet made comments on Wednesday that suggested the bank was not particularly concerned.

Instead, he indicated that the bank still planned to withdraw its quantitative easing (QE) schemes towards the end of the year as Eurozone inflation continued to gradually recover.

This left the Euro-pegged Danish Krone more appealing towards the end of the week.

Pound to Danish Krone (GBP/DKK) Forecast: European Central Bank Decision Next Week

The European Central Bank will remain in focus for Euro (EUR) traders next week, so it is likely to have a strong influence on the Pound to Danish Krone (GBP/DKK) exchange rate.

GBP/DKK may see some late-week movement if Friday’s UK growth forecast from NIESR or Germany’s trade and production stats surprise investors. Otherwise, GBP/DKK is on track to record losses this week.

Britain’s economic calendar will be much busier next week, with UK trade and production stats due on Monday, unemployment on Tuesday and inflation on Wednesday.

If UK inflation data impresses investors, Bank of England (BoE) interest rate hike bets may rise, which would make the Pound to Danish Krone exchange rate more appealing.

The biggest focus will be Thursday’s European Central Bank (ECB) policy decision. If the bank hints that it still plans to withdraw its quantitative easing (QE) scheme this year, the Pound to Danish Krone (GBP/DKK) exchange rate could be in for another week of losses.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard