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, during an interview with BuisnessWeek.
“When one central bank overnight abandons its currency peg, it’ll obviously raise the question whether the Danish central bank will be next,” Nielsen said by phone.
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.
The Danish central bank has since 1982 manipulated the krone foreign exchange value first against the German mark and then the euro.
“Denmark and Switzerland have had very similar currency regimes, though the Swiss only had to defend their peg on one end,” Nielsen said. “Someone abroad will likely speculate whether Denmark will be next to walk away from its peg.”
(ht Adam Muntner)
Hey Bob - the Danish central banker in that picture looks kind of like you.
ReplyDeleteAny interest in an essay on "Punctuated Equilibrium" or "Predator-Prey Ratios and Populations in Mammalian Economic Policy Centers"?
ReplyDeleteCW