Danmarks Nationalbank (DN) hiked its key policy rate 60 bps to 1.25%. The spread to ECB’s key policy rate is now -0.25%, which economists at Danske Bank think will be enough to weaken DKK and end the need for FX intervention.

DN ‘only’ hikes 60bp to end DKK strength

“As we expected, Danmarks Nationalbank (DN) opted for a smaller rate hike than ECB – ECB hiked its key policy rate 75bp today, but DN only 60bp. It widens the spread to ECB’s key policy rate to -0.25%. The decision comes after large-scale FX intervention.”

“We expect the adjustment is enough to send EUR/DKK higher and end the need for further FX intervention selling and more adjustments of the interest rate spread.”

“We look for EUR/DKK to rise towards the top end of this year’s trading range, i.e. to around 7.4450, and for DN to follow ECB 1:1 from here, i.e. to hike to 2.25% in February.”