Denmark's currency falls to multi-year lows vs dollar, pound after surprise rate cut

Denmark's currency plunged across the board on Thursday after the Danish central bank reduced the benchmark deposit rate for the second time in the week following the European Central Bank move to increase bond buyback.

The Danish krone declined to a new seven-year low against the pound and fell back near last month's 11-year low against the dollar while falling to a multi-month low against the pegged counterpart euro.

Denmark for the first time cut the main deposit rate below zero in October last year, when it was made -0.5%. On Monday, the central bank slashed it to -0.2% before another 15 basis points reduction on Thursday that has taken it to -0.35%.

The Danish move came within about 90 minutes after the ECB launched a bond buying plan that would increase the total monthly fund injection to €60bn ($67.28bn, £43.56bn).

Analysts said the negative impact of easier euro on the Danish currency is mainly because of the krone being pegged to the common currency. The ECB move was larger than expected, and hence the quick reaction by its Danish counterpart, they added.

USD/DKK rallied to 6.6752 from 6.5704 on Thursday, and it is now a shade away from 6.7074, the 11-year high touched on 26 January.

Against the euro, the krone fell to a 10-month low with EUR/DKK rising to as high as 7.4700. GBP/DKK jumped to 10.281, its highest since December 2007, and from the previous close of 10.205.

Denmark had moved out of recession in the second quarter of 2013 and has been seeing the growth rate increasing after making a medium term bottom at 0.3% in the second quarter of 2014.

As per data on Friday, Denmark expanded 1.3% from a year earlier in the fourth quarter. However, the country had fallen to deflation in January according to the 10 February data that showed the CPI rate for the month at -0.1%.