Denmark: The decision to mirror ECB 1:1 should send EUR/DKK lower and down to 7.4365 again – Danske Bank

Danmarks Nationalbank (DN) hiked its key policy rate by 50 bps to 1.75%. The decision to mirror ECB 1:1 should send EUR/DKK back down to 7.4365 near-term, economists at Danske Bank report.

50 bps rate hike amid a still strong DKK

“DN raised its key policy rates 50 bps to 1.75% in response to the 50 bps rate hike from ECB earlier today. DN thus opted to follow ECB 1:1 this time despite the still strong DKK vis-à-vis EUR.”

“The market was expecting DN to hike about 10 bps less than ECB, so the decision to follow ECB 1:1 will likely send EUR/DKK lower and down to 7.4365 again, trigger renewed FX intervention selling over the coming weeks and trigger a further widening of the spread to ECB’s policy rate.”

“We still expect DN to hike 10 bps less than ECB in February and to follow ECB after that, i.e. we forecast DN to hike its key policy rate to 2.90% in May.”