Trading GBP/DKK

Author

Tobias Robinson

Tobias is a UK director and partner at Investing.co.uk. He provides commentary on the financial markets in the UK and supports the testing team with first-hand observations from over two decades of active trading.

Tobias Robinson Profile Page

Fact Checker

William Berg

William is an experienced investment writer with a history in forex trading software localization and IPO consultancy. He contributes as an author and fact-checker for established financial websites.

William Berg Profile Page

The exotic GBP/DKK pair can offer profitable opportunities for UK traders, though it can also present some challenges. Before you begin your GBP vs DKK price forecast on a live chart, it’s worth considering the pros and cons below. We’ve also covered the history of the two currencies, plus some of the best exchange rate analysis techniques and trading tips.

The GBP/DKK Explained

GBP/DKK is a currency cross pair representing the exchange rate conversion between the British pound sterling and the Danish krone. The price dynamics of this quote are mainly attributed to the state of the economies of the UK and Denmark. GBP/DKK is also affected by correlated currencies, namely the euro.

Before we dive into trading the GBP/DKK pair, we take a look below at the rich economic histories that have defined both the British pound sterling and the Danish krone.

The British Pound

The pound sterling is the oldest currency in continuous use and is the fourth most traded currency in the FX market, after the US dollar, the euro and the Japanese yen. The sterling is also the fourth most popular reserve currency.

The currency has a long history of coinage and was adopted into the gold standard in the 17th century. The Bank of England was then founded in 1694, where paper money was introduced and the modern currency established.

Sterling was also circulated in much of the British Empire, including Australia, Barbados, British West Africa, Cyprus and Jamaica. During the late 19th and early 20th centuries, many countries adopted the gold standard. At this time, the pound sterling was equal to 4.87 US dollars.

Before World War I when the gold standard was suspended, the United Kingdom had one of the strongest economies in the world, holding 40% of the world’s overseas investments. This changed dramatically after the war, with the country being heavily indebted and owing £850 million with interest. During the Great Depression, the sterling suffered an initial devaluation of around 25%.

In 1940, the sterling was pegged to the US dollar at a rate of £1 = $4.03, as per the Bretton Woods system, which was maintained through World War II. After years of economic pressure, the pound was devalued by 14.3% to $2.40 by 1967.

Throughout the next few decades, the pound fluctuated due to the breakdown of the Bretton Woods system, the 1973 oil crisis, budget deficits, austerity measures and political controversy around the euro replacing the pound.

In 2007, the pound hit a 26-year high of $2.1161. After the global financial crisis in 2008, this depreciated sharply to $1.38 and an all-time low euro rate of 1.0219. The 2016 UK referendum of EU membership also caused a major decline in the pound against other world currencies, causing it to weaken against the euro by 5% overnight.

The Danish Krone

Understanding the history of the krone can aid investment decisions in the GBP/DKK. The krone is the official currency of Denmark, Greenland and the Faroe Islands and was introduced on 1st January 1875. The krone is pegged to the euro via the European Exchange Rate Mechanism (ERM II), at a rate of 7.46 and is required to stay within a 2.25% band. In 2000, a referendum was held on joining the Eurozone, however, 53.2% voted to maintain the krone.

Historically, krone coins have been minted and circulated in Denmark since the 17th century. It was later adopted by the gold standard and the Scandinavian Monetary Union from the 1870s, along with Sweden and Norway.

Between 1940 and 1945, the krone was tied to the German Reichsmark and after the end of the German occupation, a rate of 24 kroner to the British pound was introduced. Within the Bretton Woods system, Denmark devalued the krone in 1949 to a rate of 6.91 to one dollar.

Since the turn of the century, the krone against the euro reached a low of 7.4234 in April 2003 and a high of 7.4732 in March 2020.

Trading GBP/DKK: Pros & Cons

Pros

Though not the most popular pair on the market, trading GBP/DKK can come with some good benefits:

• Stability – Denmark is highly ranked in terms of ‘quality assessments’ and therefore has low levels of economic, political, financial and social risks. In fact, Denmark has been ranked in the top three countries for ‘ease of doing business’ and for ‘ease of trading across borders’. It is also #1 for the ‘least corrupt country’, #10 for the ‘most competitive country’ and #2 for the ‘happiest country in the world’.
• Volatility – The price chart of GBP/DKK moves sharply on a daily basis due to its exotic status. Traders can profit from such periods of high volatility.
• Industry – Denmark has a developing technology industry and its capital city, Copenhagen, is considered to be the thriving tech-hub of the Nordic region. With innovative businesses emerging all the time, the DKK is likely to strengthen.

Cons

As with all tradable instruments, there are certain risks to consider:

• Trade pressures – As a small export-focused country, Denmark is highly susceptible to trade pressures from other EU member states. Whilst this can make the economy more competitive, it can also make it vulnerable.
• Interest rates – Along with Switzerland, Denmark has the greatest negative interest rates in the world due to regular interventions by the European Central Bank. Lower interest rates are not attractive to traders and can indicate a weakening over time.
• Risk – Trading can be risky both in terms of the volatility of the pair as well as the risks of trading with leverage.

What Factors Affect GBP/DKK?

UK Factors

The UK economy largely consists of the services sector, plus trade and industry. Whilst agriculture is not prominent, the tourist sector is also developed.

Specifically, traders should look out for prices and inflation, as well as interest rates set by the Bank of England. The Consumer Price Index (CPI) is the best measure of inflation. Decisions made by the Monetary Policy Committee (MPC) can also be found on the BoE website.

Confidence and sentiment are also key factors affecting GBP. These are derived from national reports and surveys, including the Gfk Consumer Confidence and the nationwide Consumer Confidence Index (NCCI).

Traders should also keep an eye on GDP and general economic growth, which are key indicators of the health of an economy. As the GDP is a quarterly report, it also helps to supplement your research with more frequent indicators, such as retail sales.

Political events can also impact a currency significantly. The most notable example in the UK was the Brexit referendum in 2016, which has continued to affect the movement of GBP/DKK and other currency pairs.

Danish Factors

Denmark’s priority sectors are services and trade, technology, industry (namely pharmaceutical, chemical and food) plus agriculture.

Traders should look out for general macroeconomic data such as GDP and inflation, plus labour market indicators and the trade balance between Denmark and other EU countries. Trade pressures can be quite significant due to the country’s focus on exportation.

As the krone is pegged to the euro, it is directly impacted by euro market movements. Therefore, it is worth keeping an eye on the movements of the currency’s rivals, for example when the US dollar or the pound sterling weakens.

How To Day Trade GBP/DKK

To start day trading GBP/DKK, you will need to find a reliable and reputable forex broker that offers the pair through a trading platform, such as MetaTrader 4. You can then start building your trading strategy using the various tools available to you. There are a few key points below to consider as a starting point.

Technical Analysis

Technical analysis is one of the key pillars of day trading and is the study of prices over time on a live chart. You can find a GBP to DKK exchange rate history chart at numerous sources, including TradingView, XE and your broker’s trading platform.

Analysing prices and spot rates on a GBP to DKK graph allows traders to forecast any future trends or patterns. You can use a variety of timeframes, from 1 minute up to 5 years or even 10 years, plus a range of technical indicators and graphical objects.

A standard candlestick chart is commonly offered by most platforms and is the most popular chart type for viewing opening and closing prices in real-time. They also indicate bullish and bearish trends with green and red candles. From here, you can add a range of tools such as support and resistance, moving averages or Bollinger bands.

Fundamental Analysis

Alongside your historical exchange rate analysis, you should also implement fundamental analysis tools to broaden your research. Fundamental analysis looks at economic, financial and political reports of the regions related to the market you are trading.

For GBP/DKK, traders should follow data relating to the UK and Denmark, plus any other correlated regions such as the EU. You can find information on many reputable sources, including Yahoo Finance and Bloomberg, but don’t forget to check governmental updates or central bank news releases.

Automated Trading

Some platforms offer automated trading tools such as algorithmic investing robots or signals. Trading bots will automatically scan the markets and enter trades for you when the conditions are right. Signals can also be procured from other traders which allow you to automatically copy their positions into your account.

Both options mean you don’t have to monitor anything yourself, however, these strategies do not guarantee continued success. The popular MetaTrader platforms offer a vast library of Expert Advisors (EAs) and signals which cater to various strategies, though you could also opt for cTrader’s cBots or Copytrader.

Correlation

A correlation indicates a relationship between two or more assets due to their respective currencies or related nations. Recognising such correlations can help you to analyse certain patterns that might otherwise be overlooked.

For example, GBP/DKK has a strong correlation with the euro, not only because it is pegged to it, but also because Denmark relies heavily on exports to other European countries. This also means that the pair is correlated with EUR/USD.

Risk Management

Whatever strategy you use, it is important to manage your risk and expectations. Even the most experienced traders can be met with unexpected turns in the market. These sudden swings can be extremely damaging if trades are not properly protected.

The first rule is to not risk more than you can afford to lose. Some experts suggest that you should not risk more than 2% of your account balance per trade and always calculate your risk-reward ratio prior to entering the market.

Some of the best tools you can use are stop losses and take profits. A stop-loss allows you to set a predetermined price at which your trade will automatically close to prevent further losses. Note that this is not always guaranteed due to slippage. Take-profit serves the opposite purpose, whereby your trade will close when it reaches a certain profit level.

GBP/DKK Session Times

Forex is a 24-hour market, though there are ideal times of the day when the GBP/DKK is most volatile. In general, the best time to trade the pair is between 10:00 and 18:00 GMT, when the London and New York trading sessions overlap. It’s also worth noting that the most volatile day to trade GBP/DKK is Wednesday.

Final Word On Trading GBP/DKK

To start investing the exotic GBP to DKK currency pair, make sure to follow developments in the UK and European regions, as well as the movements of other correlated pairs. There are plenty of tools available to help you forecast price trends on a GBP/DKK live exchange rate graph, including TradingView or MetaTrader. In any case, you should always consider a good risk management strategy to help protect your investment.

Find out more about forex trading.

FAQ