An ECB government bond purchase programme to put downwards pressure on EUR/DKK and force reaction from Danmarks Nationalbank.
This will result in a higher DKK liquidity, an increase in banks' net position, push the Cita T/N fixing lower in the corridor and money market rates lower.
We forecast DN to cut the CD rate by 10bp to minus 0.30% at 16:00 CET. We expect EUR/DKK to stay unchanged around 7.4350 in 1M and 3M and to drop to 7.4325 in 6M and 12M.
We recommend clients to be positioned for further rate cuts and we further recommend Danish real-money funds with hedging mandate to hedge EUR FX exposure due to prevailing downside risk in EUR/DKK.
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