Denmark is ready to step up its currency interventions to stampout any lingering speculation the central bank may be unable todefend its euro peg.

“We have plenty of kroner,” Karsten Biltoft, head ofcommunications at the central bank in Copenhagen, said in a phoneinterview. “We have the necessary tools in terms of interest-ratechanges and interventions, and we have a sufficient supply ofDanish kroner.”

The comments follow the central bank's second rate cut in lessthan a week, with Governor Lars Rohde lowering the benchmarkdeposit rate to a record minus 0.35 percent today. That was morethan expected by most economists surveyed by Bloomberg and followeda 15 basis-point cut on Monday. The easing comes as the EuropeanCentral Bank (ECB) unveils an historic bond-purchase program.

Since Switzerland abandoned its euro peg on Jan. 15, the Daneshave fought back conjecturethey'll be next after the krone rose to its strongest againstthe euro in two and a half years. Denmark sold a record 50 billionkroner (US$7.7 billion) from Jan. 15-20 to weaken the currency,Svenska Handelsbanken AB estimates. That's equivalent to more than10 percent of foreign reserves as of the end of December.

Trade flows suggest the central bank was also active in currencymarkets today, according to Handelsbanken. Biltoft declined tocomment on any changes in currency reserves. The official data aredue to be released on Feb. 3.

Danske Bank A/S and other Nordic banks say they have fieldedcalls from hedge funds the past week seeking guidance on how likelyDenmark's euro peg is to survive. The central bank's decision todeliver unprecedented monetary stimulus this week shows how muchthe speculation has disrupted currency markets.

“It highlights the extraordinary situation we're in and that thecentral bank had to ramp up the reply to protect the peg,” JensNaervig Pedersen, an economist at Danske, said by phone. “There maybe more speculation in the market for additional rate cuts as theECB delivered a very large QE program today that will addpressure on the Danish central bank.”

President Mario Draghi today pledged the ECB would buygovernment bonds as part of an asset-purchase program worth about1.1 trillion euros ($1.3 trillion). The ECB also reduced the costof its long-term loans to banks.

According to Handelsbanken, Denmark may need to resort to itsown bond-purchase program should rate cuts and currencyinterventions prove inadequate.

Biltoft said the bank can rely on “interest rate changes andinterventions, and those tools remain in the box.”

Denmark's central bank, government, and business leaders haveall argued that speculators who take on the krone would also needto bet against the ECB, which backs Denmark's euro peg. Accordingto the ECB's agreement, efforts to support the peg should “inprinciple be automatic and unlimited.”

Rohde's job is to target 7.46038 kroner per euro. While thebank's official tolerance band is 2.25 percent, in practice it hasstayed well within about 1 percent of the target. The krone fellearlier today to as low as 7.4474, its weakest against the eurosince Jan. 2. After the rate cut, the krone traded at 7.4425 at4:44 p.m. in Copenhagen.

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