The Danish krone has remained remarkably stable amidst global economic uncertainties, particularly the ongoing trade war. This stability is largely attributed to Danish pension funds’ significant investments and hedging strategies.

Pension companies have been actively insuring themselves against potential declines in the dollar by purchasing Danish kroner and selling dollars. This strategic move has created a buffer that protects the krone’s exchange rate and benefits Danish homeowners through lower interest rates.

Economists at Sydbank and Danske Bank closely monitor the Danish currency and highlight the krone’s surprising stability despite fluctuations in global stock and bond markets. Danske Bank’s Chief Analyst, Kristoffer Kjær Lomholt, noted that the krone has not weakened during stock market sell-offs as it normally would, attributing this to the pension funds’ actions.

The current exchange rate is 746.08 kroner per 100 euros, very close to the parity rate of 746.04 kroner, which the Danish Central Bank aims to maintain to uphold its fixed exchange rate policy. This policy is crucial for ensuring stability, particularly for export companies.

According to Sydbank, an increase in coverage of one percentage point translates to a purchase of 15 billion Danish kroner. The pension companies’ increased coverage has led to purchases of approximately 150 billion Danish kroner.

Senior Economist at Sydbank, Mathias Rømer Sproegel, describes the krone’s exchange rate behavior as “boring,” indicating its calm and steady movement around the parity rate.

The stable krone also benefits homeowners, especially with the expected interest rate cuts from the European Central Bank (ECB). Danske Bank anticipates a 0.25 percent reduction in the European interest rate, which would prompt the Danish Central Bank to follow suit, lowering the Danish interest rate as well.

While pension companies’ currency hedging has not always supported the krone, its impact this spring has been significant. In 2015, similar hedging activities created upward pressure on the krone, nearly leading to the abandonment of the fixed exchange rate policy.

The question remains whether pension companies’ krone purchases can continue to stabilize the currency if the trade war escalates further.