Posted By Global Banking and Finance Review
Posted on December 20, 2024
By Jacob Gronholt-Pedersen
COPENHAGEN (Reuters) - The Danish crown weakened on Friday, after disappointing results from a late-stage trial of a new weight-loss drug drove a big fall in the shares of Denmark's largest company, Novo Nordisk.
The success of existing weight-loss treatment Wegovy in recent years has benefited the Danish economy as well as its manufacturer Novo Nordisk.
The company's exports have contributed to the Danish balance of payments surplus, creating an increased demand for exchanging profits made in foreign currencies into Danish crowns and exerting upward pressure on the currency.
However, on Friday, foreign investors selling Novo Nordisk's shares and converting the proceeds into other currencies reduced demand for the Danish currency.
"The Danish crown has come under pressure due to the large price drop in Novo Nordisk," Soren Kristensen, chief economist at Sydbank, said in a research note.
The Danish central bank seeks to maintain currency stability within a narrow band against the euro, achieved through currency interventions and interest rate adjustments.
Before Novo's announcement, the crown traded below the midpoint of its peg at around 7.46 crowns per euro, at 7.4588. It later strengthened to trade at 7.4618 per euro, above the midpoint.
If the weakness continues, the central bank might be forced to intervene by purchasing crowns or raising interest rates.
"We don't think it will come to that, but this is further evidence that Novo Nordisk is extremely important to the Danish economy," Kristensen said.
(Reporting by Jacob Gronholt-Pedersen; editing by Barbara Lewis)
