Relief for exporters as pound falls against sterling

THE pound has fallen below 103p sterling, offering some relief to exporters and confounding recent predictions that it was heading to 104p and above. The Irish currency fell further yesterday to trade late in the day at 102.88p.

The fall against sterling provides a good opportunity for exporters, according to Mr John Beggs, chief economist at AIB Treasury.

The pound has fallen against sterling from recent levels of just over 104p. Traders said the fall surprised the market. They had predicted a rise to around 104p or even 105p.

"Exporters should see these falls as opportunities they may not see again," Mr Beggs said. "This is the opportunity for them to reassess their requirements and take forward cover."

One of the major causes of the move is sterling's recent rally against the deutschmark. It has moved from around DM2.22 to around DM2.27 in under two weeks.

But some traders also noted importers taking advantage of the pound's rise against the deutschmark to DM2.34 to buy the German currency.

But Mr Beggs is dismissive of such talk. "Activity has been quite muted in AIB," he said. "This sort of move tends to provoke initial inertia as people wait and see how much further it has to go."

Mr Beggs is convinced that sterling's rise is a short term technical rally. "The currency has gone through chart points which some people pay a lot of attention to," he said. "But there is no fundamental support."

He added that the pound will begin to rise within two to four weeks, as investors begin to focus again on political problems in Britain.

However, concern about the badly performing German and French economies has also been hitting sentiment on the deutschmark, benefiting sterling, said Mr Hans de Jong, chief economist at Goodbody Stockbrokers.

In the short term, sterling does seem to have found support at around DM2.27 or DM2.28. In addition, the dollar is expected to continue its slow climb against the deutschmark, as German interest rates continue to fall. This should benefit sterling Mr de Jong added.

But sterling is also very politically and interest rate sensitive, as most analysts are now expecting British rates to fall further. This will lead to a fall in its value before long, Mr Beggs believes.

Meanwhile the US dollar, after rebounding in the Far East, edged higher in Europe when US figures showing a narrowing trade deficit and a forecast of rising German unemployment buoyed sentiment. In Dublin the pound lost half a cent to $1.5835.

The positive influence on European bourses from Wall Street's ninth record close this year did not last, however, and only the German stock market among major bourses performed well. Both French and British shares retreated after an dearly Wall Street inspired rally fizzled out. In Dublin share prices edged slightly higher.

Despite the unexpectedly good US data, which showed the trade deficit for November shrank 13.5 per cent to $7.06 billion, the lowest level since March 1994, traders remained cautious of pushing the dollar too far.

The US recorded a goods and services trade deficit of $7.06 billion in November, compared with a revised $8.16 billion in October, the Commerce Department reported.

The goods and services deficit in October was originally set at $8.04 billion. The consensus forecast of Wall Street analysts was for the November trade deficit to widen to $8.47 billion.

The November figure was the lowest since March 1994, when the deficit was $6.5 billion. The merchandise trade deficit narrowed to $11.36 billion in November from a revised $12.52 billion the previous month. The merchandise trade deficit in October had originally been reported at $12.43 billion.

In the goods sector, the rise in US exports was led by record sales of capital and military goods. The fall in imports reflected declines in imports of capital and consumer goods.

Earlier, Bundesbank council member Mr Hans Juergen Krupp said German M3 money supply growth was still another cut in interest rates might be needed. This would be likely to trigger a reduction in Irish interest rates.

The dollar was also seen firming on a report in the German daily Frankfurter Rundschau, to be published today, which forecasts this week's unemployment figures will show jobless queues climbing to 10.8 per cent - with poorer prospects for the deutschmark.