Sterling has faced fresh selling on markets, bringing it over 90p against the euro for the first time in nine months.
The selling reflects rising fears about the lack of progress between the UK and EU in Brexit talks, and concerns that the UK could yet end up leaving without any formal withdrawal deal.
Sterling’s rise above 90p is bad news for Irish exporters, particularly indigenous companies in areas such as food and engineering that rely on the UK as their main, or only, export market.
The fall of the UK currency follows weekend comments by the UK's international trade secretary Liam Fox, who warned that the risk of no-deal Brexit had risen to 60 per cent.
Political factors are driving sterling trading, according to Garret Grogan, global head of trading at Bank of Ireland, making predictions difficult. Also, the Bank of England, while it increased interest rates last week, had indicated that future rises would be slow to come.
He said Irish businesses were increasingly moving to hedge their currency exposures, both in the short term and for the sterling they planned to receive in the months ahead.
Sterling's weakness versus the euro "is a clear sign that markets are starting to focus on the pound-specific risks associated with a no-deal Brexit", said Viraj Patel, a currency strategist at ING Groep. "We've pencilled in a 0.91-0.92 high over the coming months to reflect peak no-deal Brexit uncertainty."
Sterling on Wednesday fell as much as 0.6 per cent to 90.17 pence per euro, the weakest level since the middle of November last year. As European markets closed it had recovered a shade to trade at 90.06p, which compared to Tuesday’s close at 89.63p.
Against the dollar it dropped as low to $1.2860, an 11-month low, before moving to trade at $1.2884 later in the day.
Research by Ibec, the employers’ body, has suggested that Irish export growth to the UK slows when sterling moves above 85p, and that many sectors start to feel real difficulty when the UK currency moves above 90p.
Separate research from Bord Bia points to four out of 10 food exporters facing problems when sterling moves over 89p against the euro, rising to eight out of 10 at 94p.
Sterling has been relatively stable against the euro this year, bringing some relief to Irish exporters who had seen it rise well over 90p on a couple of occasions since the Brexit vote in June 2016, peaking at just over 94p in October 2016.
However, with political uncertainty in the UK continuing to cloud the outlook, investors have again focused on the risks of a no-deal Brexit in the last few trading sessions. As well as the uncertainty in the UK, Mr Grogan said investors had also noted what appeared to be more conciliatory recent statements from the European Commission side.
In addition to hitting competitiveness for Irish exporters, a fall in sterling reduces the cost of goods being imported here. This could spell further pressure for the car industry, already suffering a sales drop due in part to imports from the UK, and create additional problems for retailers on this side of the Border as shoppers go North. – ( additional reporting Bloomberg)