Ties to US and UK brought into sharp relief as euro drops

Euro’s decline towards dollar parity the big currency story of ECB quantitative easing

Sterling is down 10 per cent since the start of the year and the dollar is already down 12 per cent. Photograph: Getty Images

Sterling is down 10 per cent since the start of the year and the dollar is already down 12 per cent. Photograph: Getty Images

 

The euro’s ongoing decline against sterling and the dollar is being fanned by the European Central Bank’s new bond-buying scheme, which is set to continue for 19 months at least.

The weakening currency is undoubtedly good for Irish exporters, the domestic tourism sector and retailers in Border counties of the Republic. But it all serves to emphasise economic frailty in mainland Europe, itself a drag on Ireland’s growth, and makes life harder for Irish companies that depend on imports from Britain and the US.

Sterling is down 10 per cent since the start of the year and 16.5 per cent over the last 12 months, says Simon McKeever, chief of the Irish Exporters’ Association.The dollar is already down 12 per cent this year and 25 per cent since 2014.

The euro’s decline towards dollar parity was seen for weeks as the big currency story attaching to the ECB quantitative easing scheme. But the sterling impact is no less significant, particularly in the Irish context. A seven-year high for sterling against the single currency on Wednesday only underlines the point.

Elastic market

Sterling’s strength presents obvious opportunities to further strengthen Irish food exports into Britain. Opportunities are also opening up in the services sector, with consulting seen an area ripe for expansion.

This on top of the tourism sector, which already seems to be on a high as British and American visitors take the benefit here of stronger spending power.

For all that, McKeever says the currency fluctuations could amplify weakness already present in Ireland in form of an increasing skills shortage in the information technology sector. He also points to the lack of trained heavy-goods vehicle drivers. “You need drivers if you want to get manufactured goods off the island, but this not being sold as a career.”

With Britain accounting for 16 per cent of total Irish exports and 34 per cent of imports into the State, sterling’s strength is bearing down too on importers.

Quantitative easing

Euro-dollar parity appears inevitable at this point, with clear benefits for the Irish pharmaceutical sector.

Still, currency traders say the prospects of sterling maintaining its current strength are less certain.

With a general election due in eight weeks, the British currency is susceptible to any jolt from opinion polls and from the eventual outcome.

A hung parliament with the Tories in the ascendant would bring with it the likelihood of a near-term referendum on EU membership, which would weigh on sterling. The instinctive market reflection that a Labour-led administration would be “bad for business” could have a similar impact.

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