The euro: soon to be the strongest big currency on the planet

Morgan Stanley predicts single currency will be more valuable than sterling in 2018

Whitechapel Market in east London: Since the  Brexit referendum last year, sterling’s value against the euro has shifted from 77p and 91p. Photograph: Tolga Akmen/AFP/Getty Images

Whitechapel Market in east London: Since the Brexit referendum last year, sterling’s value against the euro has shifted from 77p and 91p. Photograph: Tolga Akmen/AFP/Getty Images

 

The euro could soon be the strongest major currency on the planet. Morgan Stanley is predicting a stronger euro and a weakening pound – the trend that has dominated currency markets in 2017 – will soon combine to make the single currency more valuable than sterling for the first time.

In a recent note, the bank’s analysts forecast the euro would trade at £1.02 by the end of the first quarter of 2018. Right now, it’s hovering around £0.91. This rate is close to the level brought about by the “flash crash” incident of last October which, at the time, sent shockwaves through currency markets. Now it’s becoming normalised, as we head even deeper into sterling’s Brexit-related malaise.

Since the referendum last year, sterling’s value against the euro has shifted from 77p and 91p, damaging the competitiveness of Irish exports, denting UK tourist numbers, and eroding the profitability of companies that report in euro but generate revenue in the UK.

It’s already wiped out several mushroom exporting operations here and promises to wreak havoc on other food producers, whose margins are traditionally slimmer than businesses in other sectors.

Parity and beyond represents unchartered waters and the toll it’s likely to exact is impossible to predict. The only real policy option is market diversification, which is a tall order for many business, which have been tied into the UK’s massive consumer market.

Saturated

The natural home for diverted beef exports, Ireland’s single biggest food export, is mainland Europe, but already that market is saturated, while the Chinese market, where the growth potential is, has yet to be unlocked.

Of course, Morgan Stanley’s forecast is just a forecast and much can change in the UK’s Brexit flightpath. However, the reception of the UK government’s recent Brexit policy papers; the mood music surrounding the talks and the gradual weakening of UK consumer spending don’t bode well.

ECB policymakers, which are keen to peg back the euro so as to lift inflation, may reverse the tide somewhat, but the impact of a policy shift in Frankfurt is more likely to be felt on the euro/dollar exchange.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.