Denmark sells record amount of Krone in January to stave off black swan events

The latter two weeks of January were a period which required swift action by not only FX brokerages but national banks outside the severely indebted Eurozone in attempts to shore up their national economies should the Euro continue to fall at its current rate.

Denmark’s national bank, literally called Nationalbanken, yesterday confirmed that it has been taking action to weaken the Krone in order to preserve its peg by selling record amounts of Krone during the month of January.

Nationalbanken purchased $16.34 billion worth of foreign currency last month, which translates to 106.3 billion Danish Krone.

The Wall Street Journal subsequently reported that FX reserves at Denmark’s national bank rose by 106.6 billion Krone to 564.1 billion Kroner, including market interventions and borrowing by the central bank.

During the last week of January, two retail FX firms postponed the trading of Danish Krone against Hong Kong Dollar, those being Australia’s AxiTrader and Pepperstone.

The sudden rise in its market activity reflects Nationalbanken’s efforts to counter the upward pressure on the krone as investors move funds to Denmark seeking better returns than they can get in the eurozone.

Denmark has a solid reputation as a nation with a very strong economy, and a high standard of living that is reflective of its fiscal position.

Nationalbanken continues with its intention to hold the Euro’s exchange rate within 2.25% either above or below 7.46038 kroner to keep inflation low and provide stability for exporters. The country is renowned for producing high quality luxury goods and exporting the products globally, with brands such as audio-visual equipment manufacturer Bang and Olufsen, Georg Jensen silverware, and the household name of childrens’ building blocks, LEGO.

The nation has one of the world’s highest GDP per capita, at over $58,000 and therefore any effect created by the troubled economies of the Eurozone is a high priority for mitigation by Denmark’s government officials.

Denmark has cut its deposit rate to minus 0.5% and suspended issuance of bonds by the government to deflect foreign investments away from the country. By cutting the supply of bonds, it raises prices and lowers yields, making Danish bonds less appealing to investors.

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