Pound Sterling to Danish Krone (GBP/DKK) Exchange Rate Slumps as Eurozone Confidence Beats Forecasts

Weaker US Dollar (USD) and Eurozone Data Keep Pressure on Pound to Danish Krone Exchange Rate

As Brexit jitters and a murky economic outlook continue to pressure Sterling (GBP), the GBP/DKK exchange rate was dragged lower on Thursday amid stronger Eurozone data and a weaker US Dollar (USD).

Since opening this week at the interbank level of 8.43, GBP/DKK has seen notable losses. On Thursday alone, GBP/DKK lost around -0.6% and is now on track to shed most of last week’s gains.

As the Danish Krone (DKK) is pegged to the Euro (EUR), it has benefitted against the Pound due to stronger Eurozone data. The Euro’s negative correlation with its rival, the US Dollar (USD), also means that the Krone is benefitting from US Dollar weakness.

This allowed the Danish Krone to easily climb against Sterling, which has been tumbling following a Bank of England (BoE) report about the potential impact of a disorderly Brexit, and the lack of preparation for Brexit among UK businesses.

Pound (GBP) Exchange Rates Tumble on Bank of England (BoE) Warnings

Speculation that the agreed UK-EU Brexit deal would be more likely to pass through Parliament on succeeding attempts briefly supported Sterling (GBP) earlier in the week, but its gains were short-lived.

Wednesday saw the BoE publish its latest UK stress test results. While the report indicated that UK banks were prepared for the possibility of a worst-case scenario Brexit, they were pessimistic about how it would impact Britain’s economy.

The report claimed that in the event of a disorderly Brexit, Britain’s economy could shrink by 8% and the Pound could lose up to a quarter of its value.

The news led to Sterling weakness on Wednesday, but the Pound fell even further on Thursday when BoE Governor Mark Carney indicated that Britain still wasn’t actually prepared for the Brexit process overall. He said:

‘The issue is preparedness. The thing that people don’t need to worry about is the financial system – it will be there for them.

They can focus on what’s more important.’

Danish Krone (DKK) Exchange Rates Rise on Stronger Eurozone News

The Euro-pegged Danish Krone (DKK) easily benefitted from Pound (GBP) weakness today, as many of the day’s most influential Eurozone ecostats beat forecasts.

Germany’s key November unemployment rate unexpectedly improved from 5.1% to a record low of 5.0%, indicating that Germany’s strong labour market continues to support the economy amid trade uncertainties.

The unemployment change figure improved from -12k to -16k, beating the expected -10k.

What’s more, many of the Eurozone’s November confidence survey stats beat forecasts too. Eurozone business confidence notably improved from 1.01 to 1.09 rather than sliding to 0.96 as expected.

Services sentiment, economic sentiment and industrial sentiment stats also beat expectations.

Analysts noted though that while the data beat expectations, it didn’t indicate a notable improvement from Q3’s weakness. According to Bert Colijn, Senior Economist from ING:

‘Survey indicators have been unanimous in November. The economy is not showing much of a pickup from the weak third quarter.’

On top of this, the Danish Krone benefitted from the Euro’s gains versus its rival the US Dollar (USD). This was due to Federal Reserve Chairman Jerome Powell taking a surprisingly dovish tone on US monetary policy in a Wednesday speech.

Pound to Danish Krone (GBP/DKK) Exchange Rate Investors Look to Friday Data, G20 Summit

Unless there are notable Brexit developments over the next day, the Pound to Danish Krone (GBP/DKK) exchange rate is more likely to be driven by Euro (EUR) and Danish Krone (DKK) movement towards the end of the week.

Britain’s November consumer confidence stats from GfK will come in tomorrow but are unlikely to be hugely influential unless they have an effect on the Brexit outlook – which Sterling (GBP) is currently highly sensitive to.

There is plenty of Friday data for the Danish Krone to react to, however, including Denmark’s own Q3 Gross Domestic Product (GDP) projections and October unemployment rate.

The day’s Eurozone data could be even more influential, especially Eurozone Consumer Price Index (CPI) inflation projections for November, which could influence European Central Bank (ECB) interest rate hike bets if they surprise.

Markets will also be keeping an eye on the upcoming G20 summit in Argentina, where US President Donald Trump and Chinese President Xi Jinping are expected to hold a meeting which could lead to developments in US-China trade tensions.

If the US and China appear to reach some kind of breakthrough, risk-sentiment will rise and will likely cause the Pound to Danish Krone (GBP/DKK) exchange rate to fall next week as the Euro (EUR) benefits from US Dollar (USD) weakness.

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