EUR/DKK continues to hover above the 7.46038 central rate as a host of temporary factors has triggered DKK weakening.
We expect Danmarks Nationalbank to favour using FX intervention to cap EUR/DKK topside if upward pressure mounts around the 7.4610-30 level. In the current framework, we believe it will prove effective in fine tuning short-term market rates.
We forecast EUR/DKK at 7.4550 in 6-12M and that Danmarks Nationalbank will keep the key policy rate unchanged at minus 0.65% in 12M.
The risk of a repricing of the front end of the Danish yield curve should not be neglected. However, we are not overly concerned given our view that we will see no rate hike from the Danish central bank.
Hence, we keep our recommendation to buy DGB 11/21 versus OBL 10/21 and our general recommendation to buy Danish callables versus government bonds. If we see a spread widening in the DKK-EUR swap spread, we would consider it an opportunity to receive the spread.
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