Denmark defends currency peg despite Euro turmoil

In contrast to Switzerland’s actions on January 15, a day which will be remembered in history as a day of extreme market volatility when the Swiss National Bank removed its 1.20 peg on the EURCHF pair, Denmark’s central bank is continuing to do all it can to preserve the peg on the Krone against the Euro.

The Krone’s peg to the euro came under strain after the European Central Bank announced a large-scale bond-buying program in January, sending the shared currency spiraling downward, with many FX firms suspending trading on Danish Krone pairs as the Danish central bank attempted to avoid the Krone becoming a safe haven for investors by intentionally attempting to devalue it inorder to keep the peg against the Euro. The long-held exchange-rate policy also came into focus because of Switzerland’s surprise decision in mid-January to abandon its own currency cap, catching many investors off guard.

The Wall Street Journal today reported that in defense of the peg, which has been in place since 1982, the central bank cut its deposit rate four times in the space of three weeks, with the final move coming at the beginning of February. It also intervened heavily in the currency markets, buying foreign currency worth 106.3 billion Danish kroner ($15.39 billion) in January. It bought a further 168.7 billion Danish kroner in February

Speaking in London, Lars Rohde, Governor of the Danish Central Bank said the central bank did not intervene in the final weeks of February, and pledged to defend the peg, which he said had served the Danish economy well since its introduction.

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