Krone Weakness Prompts Talk of Central Bank Propping Up Currency

(Bloomberg) --

The Danish krone’s enduring weakness has prompted speculation that the central bank may have intervened for a second month in a row to prop up the currency and maintain the peg with the euro.

According to Handelsbanken’s Jes Asmussen, data due on Tuesday is expected to show that the central bank sold as much as 5 billion kroner ($736 million) worth of foreign currency in November. If so, it would represent the second such intervention in a row after a nearly year-long hiatus.

Read more: Denmark Does First FX Intervention Since January to Prop Up Peg

Asmussen said central bank fixing rate data shows that the krone hit its lowest point ever against the euro last week.

A significant drop in foreign currency reserves would fuel talk of an independent rate hike.

Denmark’s central bank has an agreement with the European Central Bank to keep the krone within a 2.25% band around a rate of 7.46038 per euro, although in practice it sticks to a much tighter range. It last lowered its main rate in September, bringing it to minus 0.75%.

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