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Key Takeaways

  • Like many currencies last year, the Danish krone weakened against the US dollar. It has also weakened against the euro.
  • The Danish central bank has intervened by selling EUR and buying DKK in the FX market to protect the DKK.
  • In September, the Danish central bank reduced its rate from -0.65 to -0.75 percent.
  • Denmark’s strong economy is vulnerable to global trade tensions.

Spot (mid-market) rates = DKK 6.7242/USD and DKK 7.4722/EUR (12pm EST, December 18, 2019)1

The Danes are famously some of the “happiest people in the world.” On the other hand, their currency, the Danish krone, has been rather unhappy. In this article, we cite reasons why their people might be so happy and why the currency is not.

Here are currency performances versus the US dollar:


SUMMARY:

  • A weakening krone versus the euro. Like many currencies last year, the Danish krone weakened against the US dollar. It has also weakened against the euro, which is of much greater concern to Danmarks Nationalbank, Denmark’s central bank. It has an agreement with the European Central Bank to peg the krone to a rate of 7.46038 per euro, inside a leeway of 2.25%2. Denmark’s trading partners are mostly eurozone countries, both sides benefiting from the stable exchange rate.
  • Frequent interventions necessary to protect the DKK. The chart below shows movements in the EUR/DKK cross since 2014. The circles highlight times when the cross spiked higher – to levels where the Danish central bank intervened by selling EUR/buying DKK in the FX market. This has happened twice so far in 2019. The cross rate has not actually tested the upper limit of the official peg, but the central bank has shown to have a relatively narrow level of tolerance.
  • The most negative interest rates in the world (along with Switzerland). In September, the European Central Bank cut its benchmark rate by 10 basis points to -0.50 percent, and the Danish central bank quickly followed suit and reduced its rate from -0.65 to -0.75 percent3. A rate HIKE might arguably be justified to help support the DKK, most analysts dismiss that idea in favor of continued CB intervention, as Denmark has plenty of FX Reserves to put to use.
  • Denmark’s strong economy is vulnerable to trade tensions. Denmark is a modern, well-established, diversified and globally competitive country. However, as a small, export-focused, open economy, it is highly susceptible to global trade pressures. Risk to slowing global trade is part of the reason for pressure on the DKK. The other reasons are: 1) a decreasing current account surplus, and 2) investor outflows after multiple years of amassing Danish assets.
  • Denmark is highly-ranked in country “quality” assessments. Denmark is a country with low levels of economic, political, financial system and social risks: 
    • Ranked third among 190 countries for Ease of Doing Business and tied for first place for having the greatest Ease of Trading Across Borders. (World Bank)
    • For the fifth year in a row, it is the #1 Least Corrupt Country in the World (Finland and Sweden are 2,3). (Transparency International)
    • Ranked #10 as Most Competitive Country in the World out of 140 countries. (World Economic Forum)
    • Denmark is the #2 Happiest Country in the World (behind Finland). “There are socioeconomic factors, such as public health, standard of living, family well-being, the public’s access to high-quality education, the general morale, and the high level of satisfaction with the lives of the Danish people.” (UN World Happiness Report)
Danish holiday tidbits:
  • The Danish monarchy is the oldest in the world, having ruled for more than 1,000 years4.
  • The flag of Denmark is the oldest, continuously used flag in the world, enjoyed by the country for the last 800 years5.
  • More than 50 percent of Copenhageners cycle to and from work each day6.
  • The actor who played Jamie Lannister in Game of Thrones, Nikolaj Coster-Waldau, is Danish7.

Silicon Valley Bank recently opened an office in Copenhagen. Denmark is a thriving tech-hub for the Nordic region – its government is supportive of the industry, and new, innovative businesses are emerging all the time. SVB’s heritage makes us a great fit/partner to work with the local innovation economy.
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1, 3 Bloomberg

2 Wikipedia. Danish krone

4 https://denmark.dk › people-and-culture › monarchy

5 https://denmark.dk/people-and-culture/dannebrog-800-years

6 https://urbanlifecopenhagen.weebly.com/transportation

7 https://en.wikipedia.org › wiki › Jaime Lannister

Scott Petruska, CFA
WRITTEN BY
Scott Petruska, CFA
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This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.

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