A recovery for the euro eased pressure on Scandinavian central banks worried about another round of deflationary gains in their local currencies on Thursday, with the Danish crown trading just below 8-month highs hit a day earlier. Denmark, Norway and Sweden have in the past been prime locations for money managers looking for safe havens from bouts of concern over the future of the euro, reheated this year by far-right candidate Marine Le Pen's prominent role in French presidential election campaigning.
The Danish crown, pegged roughly to the euro, neared the strong end on Wednesday of the 7.42-7.49 crowns trading band which local dealers regard as the central bank's normal tolerance for moves against the euro. An auction of two-year Danish government bonds, typically bought by foreign players who want to hold crowns, on Wednesday drew the most bids since a bumper tender conducted the week before Britain's vote to leave the European Union last June.
The bond carried a yield of -0.67 percent after bids came in 13 times the sold value. "In the last couple of days the Danish crown has strengthened to a level where it becomes increasingly difficult for the central bank to be passive," said Soren Kristensen a macro economist with Denmark's Sydbank.
"The bank is either very close to taking action or has already done so." In morning trade in Europe, the crown eased back to 7.4337, having traded as high as 7.4319 on Wednesday. The Danish central bank's main policy rate, which it normally moves in lockstep with those in the euro zone, already stands at -0.65 percent, meaning it has little room to manoeuvre outside of selling more crowns.
But the bank has managed to cool several bursts of appreciation of the crown since the euro zone's government debt crisis began to develop in 2010 and it has reduced reserve levels to levels last seen before the last big speculative run on the crown in 2015. "They have reserves at a level that they like and I wouldn't say they'd be happy, but they wouldn't mind increasing them as they did in 2015," said Niels Christiansen, a strategist with Nordea in Copenhagen.
"I would be surprised if investors were hedging to the same extent as we saw in 2015, unless the central bank makes investors insecure - if they let euro/Danish move below 7.43, for instance, because then there would be uncertainties about what the intention of the central bank was." Bankers in Copenhagen and Stockholm said there were fewer immediate risks of a push on the Norwegian and Swedish crowns but that both may also come into play if Le Pen continues to close the gap on her rivals ahead of an expected second-round run off in May. "Last time we saw a heightening chance of a (euro zone) breakup, they turned more into safe haven currencies," said Karl Steiner, a strategist at SEB in Stockholm. "The risk is that longer term (after a Le Pen win) we would see them gain."