After moving aggressively to defend the krone’s peg to the euro by cutting deposit interest rate four times in a span of less than three weeks, Nationalbanken bank now has speculators retreating from their aggressive efforts to get Denmark to abandon its euro peg.
According to various reports, a large number of international speculators have now given up on buying out the krone and thus increasing its value against the euro after being convinced that Nationalbanken director Lars Rohde will follow through on his repeated vows to do whatever it takes to defend the peg.
After Nationalbanken cut its deposit interest rate to -0.75 on February 5th, Rohde said there was “no upper limit” to the bank’s currency interventions.
"The fixed exchange rate policy is an indispensable element of economic policy in Denmark... Danmarks Nationalbank has the necessary instruments to defend the fixed exchange rate policy for as long as it takes," Rohde said earlier this month.
"There is no upper limit to the size of the foreign exchange reserve. The sole purpose of the monetary policy instruments is maintaining a stable krone exchange rate against the euro," he added.
Last week, Rohde was backed by Hans Jorgen Whitta-Jacobsen, the head of Denmark's Economic Council, who told Reuters that Denmark would defend the euro peg at all costs.
Whitta-Jacobesen’s comments led to the krone’s biggest slide versus the euro since 1999 and seemed to convince speculators that Denmark will not follow Switzerland’s lead in dropping the euro peg.
The head of LNG Capital, one of the hedge funds speculating against the krone, told Bloomberg that although his firm has sold out of its bet against the krone, the currency war isn’t necessarily over yet.
“How this ends is really out of the hands of the Danish central bank,” LNG CEO Louis Gargour told Bloomberg. “They do control the currency and its peg, however the external forces at work are significantly greater than the resources of any individual central bank, including the Danish central bank.”
As of Thursday morning, the krone was trading at 7.466 per euro, whereas last week it was at 7.445.