Pound Sterling to Danish Krone (GBP/DKK) Exchange Rate Edges away from Worst Levels on Slew of Weak Eurozone Data

Pound to Danish Krone Exchange Rate Rebound Limited as No-deal Brexit Fears Revive

While Brexit fears have been the primary driver of Pound (GBP) movement this week, the Pound Sterling to Danish Krone (GBP/DKK) exchange rate rebounded slightly today as investors reacted to a slew of underwhelming Eurozone ecostats.

Since opening this week at the interbank level of 8.65, GBP/DKK has largely weakened. GBP/DKK edged higher from a weekly low this morning, but due to persistent Brexit fears its rebound was fairly modest.

As the Danish Krone (DKK) is pegged to the Euro (EUR), its movement is more influenced by that of the Euro and news that affects the shared currency than data from Denmark.

Sterling remains generally unappealing as the Danish Krone has been bolstered by Euro strength amid weakness in the Euro’s rival currencies. However, as Eurozone data weighed on the Euro’s gains, GBP/DKK’s movement today was fairly limited.

Pound (GBP) Exchange Rate Recovery Limited amid Rekindled No-deal Brexit Fears

Investors have been selling the Pound (GBP) against most major rivals this week, since Tuesday’s UK Parliament debate on Brexit left the government no closer to finding a resolution to the process.

There are now under two months until the UK is set to formally leave the EU, but there is still no Brexit deal in place and UK politicians are unable to agree on a resolution to the issue.

On Tuesday, MPs voted for the government to attempt to find an alternative arrangement for the Irish border, as the Irish backstop in the current deal is highly controversial.

However, the EU quickly responded saying that all member states had united behind the backstop plan, and that its position on the negotiated deal was unlikely to change despite the government’s attempts to reopen talks.

As a result, investors are more anxious again that time will run out without a resolution to the Brexit process and lead to a no-deal situation. The Pound has been falling since Tuesday in response.

Danish Krone (DKK) Unappealing on Eurozone Data despite Fed Dovishness

For most of the past week, the US Dollar (USD) has been weaker due to US political jitters and a more dovish Federal Reserve. As the Euro (EUR) is negatively correlated to the US Dollar, this has bolstered the Euro and by extension the Euro-pegged Danish Krone (DKK).

On Wednesday evening, the Federal Reserve held its January policy decision. The Fed left interest rates frozen as expected, but took a more dovish stance on US monetary policy amid expectations of slowing global growth.

The Fed indicated it would be patient with further US interest rate hikes, following a surprisingly hawkish tone in December. The bank’s hawkishness concerned markets, but yesterday’s stance fell more in line with expectations.

Still, the Fed’s shift in tone left investors more willing to take risks, making it easier for the Euro and Danish Krone to benefit.

Demand for the Euro was limited today though, as German retail sales printed far below expectations in December and German unemployment change figures were underwhelming too.

The Euro was unable to find any support in the Eurozone’s growth stats either, as Eurozone growth is projected to have slipped from 1.6% to 1.2% year-on-year in Q4 2018 as expected.

This made it easier for the Pound to Danish Krone (GBP/DKK) exchange rate to climb slightly today.

Pound to Danish Krone (GBP/DKK) Exchange Rate Investors Await Brexit Talks and Eurozone Inflation

There still appears to be no sign that the UK is anywhere closer to reaching some kind of resolution on how the Brexit process could unfold, and with the Brexit date now under two months away the Pound (GBP) could be in for worsened volatility.

Sterling may only find some relief if the UK government indicates it will delay the Brexit date in order to avoid a worst-case scenario No-deal Brexit.

Without this though, the Pound’s potential for gains is limited and will depend more on the strength of its rivals. Some influential Eurozone data, as well as late-week movements in the US Dollar (USD), could influence the Euro (EUR) and Danish Krone (DKK).

Friday will see the publication of the Eurozone’s final January manufacturing PMI stats from Markit, as well as the Eurozone’s January inflation stats.

If Eurozone inflation beats expectations, it could make investors more hopeful that the European Central Bank (ECB) could hike Eurozone interest rates sometime this year. If they fall though, the Pound to Danish Krone (GBP/DKK) exchange rate could recover further.

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