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Pound Danish Krone (GBP/DKK) Exchange Rate Rallies on Bets of Imminent Brexit Deal Breakthrough

December 9, 2020 - Written by Frank Davies

Hopes of Imminent Brexit Breakthrough Shore up GBP/DKK Exchange Rate

Speculation that the UK and EU could be on the verge of a crunch Brexit agreement saw the Pound to Danish Krone (GBP/DKK) exchange rate rally sharply.

With time running out for the two sides to agree a deal investors were encouraged by the apparent resolving of issues surrounding the Irish border dispute.

As the UK agreed to honour the Northern Ireland protocol, in spite of previous threats to break international law over the border, this gave the Pound a solid boost against its rivals.

While an agreement is not completely certain at this stage the hope of one was enough to lift GBP exchange rates across the board.

Persistent optimism over the implementation of a Covid-19 vaccine also lent support to the Pound, with worries over the outlook of the UK economy easing.

Underwhelming UK Growth and Production Data Forecast to Limit Pound Appeal

Even so, the mood towards the Pound could easily sour once again on Thursday if October’s set of trade, production and growth data fails to impress.

Another underwhelming month of industrial and manufacturing production would indicate that the manufacturing sector started the fourth quarter on a weaker footing.

As long as the UK economy continues to show evidence of slowing in the wake of the initial autumn recovery this could drag on GBP exchange rates.

Further volatility also looks set for the GBP/DKK exchange rate on the back of October’s monthly gross domestic product reading.

Confirmation that the UK economy lost further momentum in October would leave the Pound vulnerable to renewed selling pressure as the odds of a potential double-dip recession grow.

Unless growth can deliver another strong monthly performance this looks set to push the GBP/DKK exchange rate off its latest uptrend.

Narrowed October Trade Surplus Weighs on Danish Krone

Support for the Danish Krone weakened on Wednesday, meanwhile, thanks to a sharper-than-expected narrowing of October’s trade surplus.

This suggests that trade conditions deteriorated at the start of the fourth quarter, reflecting the latest impact of the ongoing Covid-19 crisis.

Growing anticipation ahead of the European Central Bank’s (ECB) December policy meeting also put pressure on DKK exchange rates, thanks to their close correlation with the Euro.

Even if November’s Danish inflation rate shows an uptick on the year as anticipated this may not be enough to offer the Krone any particular support in the near term.

As long as the Euro remains under pressure and worries over the health of the fourth quarter economic outlook remain the GBP/DKK exchange rate should hold onto a stronger footing.
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