The Danish crown weakened on Friday after disappointing results from a late-stage trial of a new weight-loss drug led to a sharp fall in shares of Denmark's largest company, Novo Nordisk.
The success of Wegovy, a weight-loss treatment, in recent years has benefited the Danish economy as well as its manufacturer, Novo Nordisk.
The company's exports contributed to the Danish balance of payments surplus, creating increased demand for converting profits earned in foreign currencies into Danish crowns and putting upward pressure on the currency.
However, on Friday, foreign investors who sold Novo Nordisk shares and converted the sale proceeds into other currencies reduced demand for the Danish currency.
“The Danish krone came under pressure due to the sharp drop in Novo Nordisk prices,” Soren Kristensen, chief economist at Sydbank, said in a research note.
The Danish central bank seeks to keep the currency stable within a narrow band against the euro, through foreign exchange market interventions and interest rate adjustments.
Before Novo's announcement, the crown was trading below its parity midpoint, at around 7.46 crowns to the euro, at 7.4588. It then strengthened to trade at 7.4618 per euro, above the midpoint.
If the weakness continues, the central bank may be forced to intervene by buying crowns or raising interest rates.
“We don't think we will get to that point, but it proves once again that Novo Nordisk is extremely important for the Danish economy,” Mr Kristensen said.
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