Danish pension funds have increased their US dollar hedging by DKK 59bn since late March, analysis by Danmark’s Nationalbank has revealed.

Publishing its latest report on monetary and financial trends, the bank said that the exchange rate of the krone against the euro has strengthened moderately since March. It said one of the reasons could be the bank’s independent interest rate increase in March.

However, it also noted the increased dollar hedging of Danish pension funds as a reason.

“While part of the dollar exposure is hedged to euro, historically at least 80 per cent of the dollar hedging is hedged to kroner. The reason for the increased dollar hedging is not that the insurance and pension sector hedges a higher percentage of their dollar exposure.

“Rather, the reason is that their dollar exposure has increased following the recovery of the US equity market. At the end of August, Danmark’s Nationalbank had not intervened in the foreign exchange market since March,” it stated.

The report by the bank was part of a larger look at the current state of the Danish economy. The bank said the Danish economy is now in a “moderate recession” and Danish GDP is expected to decrease overall by 3.6 per cent this year.

“Further recovery will be sluggish. Internationally, many countries are in deep recession, and a full recovery of economic activity will take a long time,” it stated.

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