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Pound Sterling to Danish Krone (GBP/DKK) Surges on Hopes for UK-EU Financial Services Deal

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Pound to Danish Krone Exchange Rate Jumps Ahead of Bank of England (BoE) Decision

After days of mixed performance on Brexit uncertainties and Sterling (GBP) profit-taking, the Pound Sterling to Danish Krone (GBP/DKK) exchange rate surged on Thursday in response to a report suggesting a UK-EU deal on financial services is close to being met.

Despite sliding to a monthly low of 8.35 on Wednesday evening, GBP/DKK has been recovering since then on speculation that a Brexit deal may be nearing. At the time of writing this morning, GBP/DKK trends near a weekly high of 8.46.

Markets were excited by reports that a deal on financial services was within sights in UK-EU Brexit negotiations. Investors have been anxious for some time about the future of London as a financial centre following Brexit.

Meanwhile, the Danish Krone (DKK), which is still pegged to the Euro (EUR), has seen limited demand due to underwhelming Eurozone growth data this week.

Pound (GBP) Exchange Rates Surge on Hopes for Financial Services Deal

While markets remain anxious about the possibility that UK-EU negotiations may fail to reach a solid post-Brexit deal and that this could lead to worst-case scenario ‘no-deal Brexit’, a fresh report led to a surge in Pound demand today.

According to an article in The Times newspaper, UK and EU negotiators have largely agreed to a deal that would allow UK financial services access to the Eurozone post-Brexit.

The report claimed it had been told by government sources that a tentative deal spanning all aspects of future partnerships in the sector had been reached.

The deal would reportedly work on the concept of ‘equivalence’, the EU’s financial market access system. However, the downside is that access to this system can be withdrawn on just a month’s notice.

Nonetheless, Sterling surged in response to the news as investors hoped the UK would be more likely to continue a financial services relationship with the EU similar to the one it already has.

Danish Krone (DKK) Exchange Rates Fail to Hold Ground as Eurozone Data Disappoints

Despite Wednesday’s news that the Eurozone’s core inflation rate was actually projected to rise more than expected in October, the Danish Krone, still pegged to the Euro (EUR), has seen weaker performance.

This was due to other recent Eurozone data indicating that the bloc’s economic activity is being negatively impacted by US trade protectionism fears.

German retail sales were unexpectedly weak in September, coming in at 0.1% month-on-month and plunging to -2.6% year-on-year.

It followed Eurozone Gross Domestic Product (GDP) projections on Tuesday, which fell short of forecasts too.

Denmark’s October business confidence data from October, also published on Tuesday, worsened from -1 to -2.

Danish Krone and Euro weakness came despite higher Eurozone inflation figures, which may make the European Central Bank (ECB) more hawkish if the price pressures continue to strengthen.

Pound to Danish Krone (GBP/DKK) Exchange Rate Investors Await Manufacturing Data

Thursday will see the Bank of England (BoE) hold its November policy decision, but market reaction to the bank’s news may be muted as focus remains on Brexit developments.

Pound traders remain focused on whether or not a UK-EU Brexit deal will be agreed. In the event that a Brexit deal is reached in the coming weeks, markets are more likely to review the Bank of England’s tone.

Investors expect the bank to take a cautiously optimistic stance on monetary policy in the assumption that a Brexit deal is met. If the bank gives any comments about the possibility of a ‘no-deal Brexit’, this could be influential too.

With Sterling more likely to be influenced by Brexit developments, GBP/DKK may be more likely to shift direction on upcoming Eurozone data.

Friday will see the3 publication of Markit’s October manufacturing PMI results from the Eurozone. If this data beats projections, which were highly underwhelming, it may make the Danish Krone more appealing and limit this week’s Pound to Danish Krone (GBP/DKK) exchange rate gains.