2012.05.25 15:56:39 Euro-Zone Stresses Fuel Danish Krone Rise, Put Strain On Peg

-- Danish krone strengthens against euro as investors seek shelter from euro-zone crisis -- Danish currency's peg to the euro coming under pressure -- Central bank action to stem krone appreciation has so far had limited effect -- Strategists expect Nationalbank to do more, foresee additional rate cuts and intervention By Jessica Mead Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Denmark's central bank is once again struggling to keep a lid on its euro-pegged currency as nervous investors seeking a refuge from euro-zone turmoil flock to one of a dwindling number of countries still rated triple-A. The Danish krone has risen 0.12% against the euro since the start of May--a tiny move for most currencies but a substantial one for the krone, which has been pegged in a narrow band against the euro since 1999 and against the Deutsche mark before that. In an effort to make parking funds in its currency less attractive, the Danish central bank trimmed its key lending rate to 0.6% from 0.7% on Thursday and said the move had been preceded by its first purchases of foreign currency in the market this year. Yet currency strategists think investors will continue to demand Danish assets as worries about a possible Greek exit from the euro zone build ahead of Greece's elections on June 17 and in the absence of more traditional safe-haven currencies such as the Swiss franc, which has been capped by the Swiss National Bank since September. "The impact [of Thursday's cut] has been limited so we can only believe that more cuts are likely given the downward pressure on the euro against the Danish krone," said Niels Christensen, chief currency analyst at Nordea in Copenhagen. The Nationalbank usually mimics European Central Bank rate moves but strategists say there could now be more independent rate cuts like Thursday's, although probably not before the ECB's next meeting on June 7, unless flows into the krone jump dramatically. "We do expect these flows to continue over the next two months, especially before the Greek elections. The central bank will intervene...and if that's not enough, it will cut rates," said Anders Moller Lumholtz, senior markets analyst at Danske Bank in Copenhagen. The Nationalbank has in the past staunchly defended the euro-krone peg--seen as a central plank of its economic policy--and is expected to do what is needed to keep the krone stable. Moller Lumholtz said negative interest rates on certificates of deposit are certainly a possibility. "The central bank would be reluctant because it has never done it before. [But] if the stress continues and intensifies, they will not be scared. If they give the market the feeling that they are ready to accept a strong Danish krone, then the flows will intensify," he said. -By Jessica Mead, Dow Jones Newswires; 44 20 7842 9256; jessica.mead@dowjones.com; @jessicacmeadFX/@djfxtrader (END) Dow Jones Newswires May 25, 2012 09:56 ET (13:56 GMT)