December 7, 2020 - Written by Tim Boyer
STORY LINK GBP to DKK Exchange Rate Struggles Near 2-Month-Worst as No-Deal Brexit Threat Worsens
Hopes for a Brexit deal to be reached within hours or days have seemingly unravelled for now, as December draws on without a Brexit deal being reached, knocking the British Pound to Danish Krone (GBP/DKK) exchange rate lower. The Danish Krone is pegged to the Euro (EUR), meaning that it is gaining alongside the Euro as the shared currency benefits from weakness in rivals like the Pound and US Dollar (USD).
The Euro’s resilient strength pulled GBP/DKK lower last week as well. Last week saw GBP/DKK open the week at the level of 8.2826 and briefly attempt to rebound before sliding again, and closing the week at the level of 8.2522.
This week so far, GBP/DKK has already seen a sharp drop as no-deal Brexit speculation intensifies. GBP/DKK touched on a low of 8.1482 earlier, which was the worst level for the pair since late-September.
At the time of writing GBP/DKK is attempting to edge higher, but remains very low and trends in the region of 8.1720.
GBP Exchange Rates Throttled as No-Deal Hard Brexit Fears Intensify
For much of the past few weeks, markets had been speculating that the UK and EU were on the cusp of reaching a Brexit deal after a gruelling four year long Brexit process.
This made the Pound more appealing, helping it to hold against a strong Euro and Danish Krone.
However, concerns that UK-EU negotiations would collapse at the finish line have returned full force since late last week.
Comments from officials suggesting that a deal was hours or days away have since been seen as inaccurate, with EU Chief Negotiator Michel Barnier saying today that major differences still persisted.
Barnier’s comments were seen as downbeat, and doubts that a deal can be reached in time for the end of the Brexit transition period are worsening. This is hurting the Pound today, leaving the British currency tumbling against the comparatively strong Euro and Danish Krone.
EU officials reportedly do not want talks to last beyond Wednesday, so that Brexit does not overshadow the upcoming EU Summit on Thursday. An EU source said:
‘The EU really doesn’t want Brexit to overshadow the EU summit Thursday and Friday this week.,
It has big budget, rule of law and COVID recovery fund problems to sort.’
DKK Exchange Rates Remain Appealing despite Slowing Rally
The Danish Krone is pegged to the Euro, meaning it has been climbing due to the Euro’s resilient strength in recent weeks.
Due to uncertainty and weakness in the UK and US outlooks, the Euro has been comparatively more appealing. The Eurozone’s handling of the coronavirus pandemic and more resilient economic activity is keeping the Euro appealing, which is supporting the Danish Krone as well.
This is keeping the Danish Krone strong today as well. While the Euro and Krone rally is running out of steam due to recently hitting its best levels in months against the Pound and US Dollar, the outlook still looks relatively appealing.
On top of this, the Euro continues to be supported by strong data, indicating that the Eurozone is weathering the coronavirus pandemic better than other major economies. Today’s German industrial production stats for October came in at 3.2% rather than the expected 1.6%.
Valeria Bednarik, Chief Analyst at FXStreet, said that the Euro has already corrected its recent overbought conditions against the US Dollar as well:
‘Germany published October Industrial Production, which provided support to the shared currency as it rose by 3.2% MoM, beating expectations.
The EUR/USD pair has corrected oversold conditions in the short-term and is slowly recovering its bullish potential. The 4-hour chart shows that the price is back above a bullish 20 SMA, while technical indicators are bouncing from around their midlines.’
Today’s Denmark industrial production data was weaker than expected, but this ultimately had little impact on the Danish Krone.
GBP/DKK Exchange Rate Forecast: Brexit to See Intensifying Focus
Developments over whether or not the UK and EU will reach a Brexit deal in time for the end of the Brexit transition period are likely to remain the key focus for the Pound to Euro exchange rate this week.
Amid speculation that talks could collapse if no deal is met by Wednesday, the Pound could keep weakening until a deal is made over the coming days.
If no deal is made, the Pound could plummet instead on significant no-deal Brexit fears. A no-deal Brexit would have a huge impact on the UK economy from January onwards.
According to Francesco Pesole at ING:
‘We see modest upside in the case of a deal but profound downside in the case of a no-deal, given the limited risk premia evident in GBP’
As for the Danish Krone, it is likely to keep being buoyed by the Euro’s resilient strength. Analysts predict that the Euro will remain strong so long as its rivals like the Pound and US Dollar are weak.
The Euro and Danish Krone could also strengthen and push the Pound to Danish Krone exchange rate lower stil if tomorrow’s Eurozone growth rate report impresses investors.
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TAGS: Pound Sterling Forecasts