Excitement about the latest rally in the value of the euro may be premature as a sustained rally now would be a bad time for Irish exporters.
At its current level of just under $0.92, the euro has risen by about 7.5 per cent against the US dollar over the last month and is off its all time low last October of $0.825.
But the test rally compares with a euro launch level in January 1999 of $1.17 and the high of $1.19 which it reached in its early days.
Even with its rise to around $0.92, the euro is still well down on its $0.95 value at the start of the year.
The currency has rallied before - at the end of last year it touched $0.96 driven by speculators, or momentum investors, buying to turn short term profits - only to fall sharply again. The reasons behind the latest rally do not inspire confidence that the rise can be sustained.
However, the rally, if sustained, would not come at a good time for the Irish economy, with its strong reliance on economic growth through exports.
A strong euro would make Irish-produced goods more expensive in areas outside the euro, such as the UK and the US.
The reasons for the latest rally have more to do with negative sentiment against the US dollar on fears about a prolonged slowdown in the US economy than any positive sentiment towards the euro.
Other currencies including sterling and the yen have benefited from the flight out of dollars.
Even evidence this week of stagnant second quarter growth in Germany failed to halt the flow from the dollar into the euro.
Investors are now concerned that the dollar is overvalued and the old arguments that supported the value of the currency, including expectations of a swift economic recovery in the US, have been battered.
Market views vary on the outlook for the euro. All agree the US economy's performance will be the main determinant of the euro's value.
But market sentiment will be influenced by the monetary policy stance adopted in coming months by the European Central Bank - the market expects to see cuts in the ECB interest rate in response to evidence of flagging economy growth.
Economists bearish on the US economy expect the euro to rise to $1 to $1.10 over the next year. Those who are bullish that the US economy will bounce back expect the euro to fall back to an $0.80 to $0.85 range on evidence of that recovery.
If momentum players are back in the market buying euros to turn quick profits on currency price differentials, there is a danger that if the rise in the euro stalls, heavy selling by speculators will push its value down sharply.
For Irish exporters, a sustained strong rally in the euro would come at a bad time. The global economy has slowed, making it more difficult to sell exports into foreign markets - some 63 per cent of Irish exports go to markets outside the euro zone.
A rise in the euro would drive up the price of Irish products in non-euro markets.
Irish exporters of price-sensitive products would have to either accept lower profit margins to maintain market share or accept a fall in sales volumes.
But the positive effects of a stronger euro would include lower oil, petrol and import prices.
