From Europe to Asia it seems not a day goes by without news of another major central bank easing monetary policy, or taking rates to zero, or below. In fact, last week marked the 14th central bank to ease monetary policy so far this year.
As the “Currency Wars” debate heats up, in this blog Numerix FX expert Udi Sela, focuses in on Denmark and the recent pressure they’ve been under – specifically the likelihood of having the Danish National Bank follow the footsteps of the Swiss National Bank and abandon its peg to the Euro. Udi examines the outlook for the Danish Krone and how the negative rate environment across the is impacting FX options trading strategies.
Jim: Hi, welcome to Numerix video blog, your expert sources of derivative trends and topics. I’m your host, Jim Jockle. From Europe to Asia, it seems not a day goes by without news of another major central bank easing monetary policy or taking rates to zero. In fact last week marked the 14th central bank to ease monetary policy so far this year.
Taking a look at this graphic, specifically in the EU you can see main policy rates in zero or negative territory represented in red. Including, Denmark, Norway, Sweden, Finland, Germany, France, Spain, Ireland, the UK, Italy, and Greece.
As the currency war debate heats up, today I’d like to focus on Denmark, and the recent pressure they’ve been under. Specifically the likelihood of having the Danish National Bank follow the footsteps of the Swiss National Bank and abandon its pegging to the Euro. Joining me today to discuss this is Udi Sela, VP of the Numerix Client Solutions Group and resident FX expert. Udi, how are you today?
Udi: Thank you, very well Jim. Thank you for having me.
Jim: And thank you for joining us. So why don’t we just start and perhaps you can provide us the latest on the situation.
Udi: Right, so everyone is probably aware of the surprising decision by the Swiss National Bank stopping the pegging of the Swiss franc to the euro at 1.20. They have been buying hundreds of billions of euros against Swiss franc for 3 years since 2011. And on the 15th of January they have decided they would change the policy and will not support the Swiss franc anymore. When I say support basically weaken the Swiss franc. Because Switzerland is foreseen as a safe haven investors have traditionally placed funds there. And during the rough times, since the European Central bank has envisaged quantitative easing the Swiss national bank has determined that it would be too costly for them to protect the Swiss franc or if you’d like to weaken the Swiss franc.