Are Currency Forward Traders Misreading Denmark Again?: Chart

  • Danske advising funds there's money to be made on mispricing
  • Nordea says it can't rule out Danish rate hike on Thursday

Last year, speculators were convinced the Danish krone should trade stronger than dictated by its peg. Now, the forward market suggests traders think the opposite. According to Danske, they’re wrong again and savvy investors stand to profit from their missteps.

The chart shows that three-year forward-rate contracts on the krone are trading at close to their weakest against the euro in at least half a year. The level is also considerably off the spot rate that the central bank has consistently defended as part of its policy mandate. Danske Bank is telling pension funds they can make money because the forward market “is offering terms the Danish central bank will never allow to materialize,” said Jens Naervig Pedersen, a senior analyst based in Copenhagen. “There’s money to be made if you think the central bank will uphold its fixed-currency regime,” he said. Last year, speculators betting against the central bank lost money. Has anyone learned any lessons? Nordea, Scandinavia’s biggest bank, says it “can’t rule out” Denmark will raise rates on Thursday to support the krone.

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