2015-01-19

Would You Take 100 to 1 Odds on The Krone Peg Ending?

The Danish central bank has cut interest rates to negative 0.20%. The Swiss franc rallied more than 30% once the peg ended. If the Danish krone rallies 20% in the wake of an end to the peg, that would deliver 100 times the negative 0.20% interest rate for investors whose base currency is euros.

Buy krone, lost 0.20% per year, but have the chance to earn 20% if the peg ends. Even if the krone only rallies 5% or 10%, a 0.2% negative interest rate will not stop people fleeing a devaluation and looking for a shot at appreciation.

Mish Shedlock covered the rate cut here: Denmark Announces Currency Peg is "Secure"; 12 Denials in 1 Day; Deposit Rate Cut to -0.20%; More Rate Cuts Coming?

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