Danish Krone Soars To 6-day High Against Dollar As Denmark Central Bank Slashes Key Rate To 1.45%

The Danish krone surged higher against the US dollar on Thursday morning in New York after the Denmark central bank decided to reduce its key interest rate by 0.1 percentage points to 1.45%, effective from August 14.

The Danish krone is pegged to the euro since January 1, 1999. Prior to the introduction of the euro, the Danish Krone was pegged to the German Mark. The reference rate for the euro-krone pair is at 7.4603.

The Danmarks Nationalbank also lowered interest rates on deposits by 0.1 percentage point to 1.35%. Similarly, the discount rate and the interest rate on the banks' current accounts slashed to 1.10%.

The central bank said the interest rate reduction was a consequence of purchasing foreign exchange in the market.

Bouncing back from Wednesday's 12-day low, the Danish krone advanced more than 1.7 percent against the greenback to reach a 6-day high of 5.196 by 9:15 am ET. The pair moved sideways thereafter and is currently quoted at 5.2102.

A rise above the 5.153 resistance level may lead the Denmark currency to touch its highest level of the year. The pair closed yesterday's deals at 5.2479.

Earlier in the day, the Danske Bank had predicted an imminent 10 basis points reduction in the key interest rate. "The main reasons for our expectation are that the Danish krone is very strong due to a high carry and that we are currently seeing a solid inflow into DKK," the bank said in a note.

According to Danske Bank estimates, the Danish currency reserve currently stands in excess of DKK 350 billion. Under normal circumstances, the Danish central bank will change the lending rate if the currency reserve changes by around DKK 20 billion, the bank said.