THE EURO has breached the $1.50 barrier against the dollar for the first time since the European single currency was launched in 1999.
The US currency's dive followed intimations of further cuts in official US interest rates by chairman of the Federal Reserve board Ben Bernanke. Additionally a spike in oil prices, which saw US crude top $102 a barrel at one stage, and weak data on US new house sales and durable goods orders, weighed on the US currency's performance on foreign exchange markets.
The continuing fall in the dollar is making Irish goods and services more expensive on US markets. In turn, this is blunting the competitiveness and squeezing the profitability of Irish enterprises exporting to the US.
In 2006, the US was the largest single foreign market for Irish merchandise exports, and critically important to services exports such as tourism and financial services.
As oil prices touched a record high yesterday, the share prices of Ryanair and Aer Lingus fell as investors anticipated higher fuel costs. NCB Stockbrokers also noted Aer Lingus's new transatlantic routes looked "vulnerable" to growing concerns that there will be a recession in the US this year.
Delivering his twice-yearly report on monetary policy to the US Congress, Dr Bernanke said "incoming information since our January meeting continues to suggest sluggish economic activity in the near term". At the end of January, the Fed - the US central bank - projected US economic growth of between 1.3 and 2.0 per cent this year.
Dr Bernanke continued: "The risks to this outlook remain to the downside. The risks include the possibilities that the housing market or the labour market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further." Opening the way for further US interest rate cuts, he said the Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks".
The dollar, which closed at $1.5115 to the euro, has now dipped by 19 cents or 14.5 per cent in the past 12 months.
Since the European single currency was launched in 1999, the dollar has declined against it by 44 cents or 41 per cent.
The Fed has been cutting interest rates aggressively since last summer in an effort to forestall a recession in the US. The key Federal Funds rate has been reduced from 5.25 per cent to 3.0 per cent in the last six months.
The next scheduled meeting of the Federal Open Market Committee - which decides official US interest rates - is fixed for March 18th.
Yesterday's intimations of further reductions in US rates sent funds scurrying out of dollars and into euro.
The relative attractiveness of the euro was underlined when president of the German Bundesbank Axel Weber suggested the European Central Bank (ECB) was not for turning on the interest rate front. The key ECB interest rate has been held at 4.0 per cent throughout the current credit crunch.
Speaking in Bonn, Prof Weber - who carries substantial weight in the governing council of the ECB - said: "The consensus currently dominating the market regarding rate expectations clearly underestimates inflation risks in my opinion. . . Expectations regarding rates do not reflect in any case the evaluation of the bank's monetary policy, which is devoted to price stability."