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SNB move fuels speculation Danes may be next as krone gains

Thursday, January 15, 2015 - 20:14
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The decision by the Swiss National Bank to abandon its euro cap is fueling speculation the Danish central bank may come under pressure to follow suit, according to Nordea Bank AB.

[COPENHAGEN] The decision by the Swiss National Bank to abandon its euro cap is fueling speculation the Danish central bank may come under pressure to follow suit, according to Nordea Bank AB.

Investors and traders unfamiliar with Denmark's three- decades-long history of defending the krone's peg may be wondering whether policy makers in Copenhagen can support their currency regime after the Swiss dropped their three-year-old cap of 1.20 franc per euro, said Jan Stoerup Nielsen, an economist at Nordea in Copenhagen.

"When one central bank overnight abandons its currency peg, it'll obviously raise the question whether the Danish central bank will be next," Mr Nielsen said by phone. "The Swiss also made a dramatic rate change, which is bound to impact Denmark."

Danske Bank A/S said Denmark may be forced to respond to the SNB's move with a rate cut. The news out of Switzerland could "force the Danish central bank to react to avoid too much krone appreciation versus the euro," Jens Naervig Pedersen, a senior analyst at Danske, said in a note.

Central bank spokesman Karsten Biltoft wasn't immediately available for comment.

ECB QE The Danish central bank has since 1982 defended the krone's peg to first the German mark and then the euro. Governor Lars Rohde has warned that Danish rates are already under pressure as the European Central Bank prepares to start its program of quantitative easing.

The Danish bank's benchmark deposit rate is minus 0.05 per cent. The SNB today cut its main rate to minus 0.75 per cent from minus 0.25 per cent.

"Denmark and Switzerland have had very similar currency regimes, though the Swiss only had to defend their peg on one end," Mr Nielsen said. "Someone abroad will likely speculate whether Denmark will be next to walk away from its peg." The Swiss franc strengthened as much as 29 per cent against the euro today while Denmark's krone rose to its strongest since Dec 25.

The SNB's decision came just one week before European Central Bank policy makers meet to discuss the purchase of government bonds. The Danish central bank doesn't hold scheduled meetings and only adjusts rates to maintain the exchange rate.

BLOOMBERG