EUR/DKK: Use of foreign currency issuance to have significant implications – Danske Bank

The decision in Denmark to allow for the use of foreign currency issuance to cover the big public deficit could potentially have significant implications for the short-term DKK money market, per  Danske Bank.

Key quotes

“When the government uses foreign currency issuance to fund the deficit it increases the net position 1:1.”

“Worst case we could see the net position rise to around DKK240-260bn in May from currently around DKK125bn. That would send FX forwards more in negative.” 

“Finally, this would make it less attractive to be short EUR/DKK, while we stress that EUR/DKK depends just as much on the development in equity markets.”