Pound Rallies against Krone (GBP/DKK) as Eurozone Fears Hit Euro-Pegged Danish Currency
The last week has seen a steady rise in the GBP/DKK exchange rate as optimism surrounding Brexit had pulled the Pound higher against the Euro-pegged Krone.
After last week’s slide against the Krone (DKK), the Pound (GBP) has since rallied, with investors hopeful that a Brexit deal will be agreed as soon as next week.
On the other side of the pairing DKK has been let down both by slowing rates of inflation and GDP, as well as wider Eurozone problems including the EU’s standoff with Italy over its rule-breaking deficit level.
Danske Bank Money Laundering Probe Unnerves Danish Investors
Denmark’s largest commercial bank Danske Bank is facing a criminal probe by US investigators over claims that it laundered €200bn through its Estonian branch.
The scandal has led to the resignation of its CEO Thomas Borgen, who has been replaced by an interim caretaker while an investigation is conducted.
Shares in the troubled bank have fallen 42% since February on the news as investors flee amid talk of a ‘multi-billion’ Dollar fine being levied.
The probe is in relation to alleged ‘suspicious payments’ involving Russian money made through its Estonian branch.
GBP/DKK Brushes off Concerns after Flatlining UK GDP Figures Revealed for August
Today the Danish Krone (DKK) is holding steady against Sterling (GBP) even though some very mixed UK economic activity statistics were released this morning.
The Office for National Statistics (ONS) released August’s GDP growth figures earlier, which revealed 0% growth during the month, down from 0.4% in July and below expectations of a 0.1% rise.
There was no immediate market reaction, however, as monthly readings are often considered too volatile to provide a reliable indication of the state of the economy, and in this case GDP figures for the summer period were adjusted upwards to 0.7%, meaning that overall growth trends still remain within a margin of expectations.
At the same time, however, there was further disappointing news in the form of the UK trade balance during the same month, which sank to -£1.274bn, down from July’s -£0.572bn.
The ONS report also revealed that the UK construction sector was hit particularly hard, contracting by some 0.7%, while the service sector failed to show any growth.
IMF Criticism Fails to Rattle GBP Investors
The Danish Krone spent much of yesterday advancing against the Pound on Brexit sentiment but pulled back in late trade as hopes of a swift UK-EU deal rose once again.
The Pound managed to stay ahead of the Krone despite some worrying pronouncements from the IMF, with a report warning that Brexit could harm future UK and Eurozone economic growth, stating:
‘The possible failure of Brexit negotiations poses another risk.
‘An intensification of trade tensions and the associated further rise in policy uncertainty could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade.’
Today sees more warnings from the IMF, with the international finance organisation pointing out that the UK’s public finances are among the worst of all countries.
The IMF’s figures revealed the UK has £5tn in liabilities, but less than £3tn in assets, leaving it with a negative net worth of more than £2tn. The liabilities outlined are mostly in the form of government debt and future pension obligations.
Danish Data Disappoints as Ecostats Point to Slowing Economy
Some recent data releases have proved worrying for Krone investors, with indications that the Danish economy is slowing.
This morning’s inflation figures for September revealed a rate of 0.6%, year on year, against expectations of a 1% rise, which would have been equal to August’s figure.
This is the lowest monthly level of inflation since February and will stoke concerns that the Danish economy is slowing, with the latest quarterly GDP figures from July also revealing a slowing trend of 0.2% growth.
With Denmark’s economy having contracted earlier in the year DKK investors will be concerned that the latest ecostats could indicate the Nordic country is heading towards a recession.
GBP/DKK Outlook: Political News in the Driving Seat Once Again
Over the coming week the GBP/DKK exchange rate is likely to be driven by continued concerns about the UK’s relationship with the EU after it leaves the bloc in March 2019.
Current indications, based on comments made yesterday by EU officials indicate that a deal may be forthcoming as early as next week. Were this to be so the Pound would no doubt rally against the Krone.
The value of the Danish Krone is also sensitive to developments related to the EU-Italy budget impasse, with any signs that the row could flare up liable to negatively hit the DKK/GBP exchange rate.