The British pound weakened to 95 pence to the euro for the first time this morning, before trading at 94.49 pence as of 2.57pm in London.
"Our worst fears are playing out," said Rossa White, chief economist at Davy's Stockbrokers. "Parity is within sight, disastrous news for Ireland's indigenous exporters."
In a note today Simon Barry, a senior economist with Ulster Bank, said the latest UK unemployment data was "shockingly weak".
He said this weakness was providing the market with the excuse to continue to sell sterling aggressively on the foreign exchange markets. With the Bank of England dovish on interest rates "there is further downside for the UK currency in the short term . . ."
"With the jobs market deteriorating at such a rapid pace it is little wonder that activity on the High Street is coming under profound pressure."
Mr Barry said this level would correspond to £1.20 in "old money" (ie Punt) terms for those with memories of the pain of the early 1990s currency crisis in which the peak for the Punt/sterling rate was just over £1.10.
The euro surged across the board today, buoyed by expectations that euro zone interest rates will not fall as steeply as those in other major economies despite data pointing to worsening German business sentiment.
The euro is set for its best weekly performance ever against the dollar, after the US Federal Reserve cut benchmark interest rates to a historic low near zero on Tuesday.
In contrast, the European Central Bank seems more cautious about drastically reducing rates, where key rates now stand at 2.5 per cent.
In thin volatile trade, the euro surged to a 2-1/2 month high against the dollar at $1.4719. By 13.03pm, it was up 1.5 per cent on the day at $1.4625.
"The rise in euro/sterling is relentless, pushing the pair up toward parity," said Christian Lawrence, currency strategist at RBC Capital Markets in London.
The euro's rise accelerated despite a weaker-than-expected reading of the Ifo institute's index on German business sentiment. The headline index fell to 82.6 in December from 85.8 in November, below expectations of 84.0.
"The euro is picking up quite a lot of support - the yield differentials have moved out and that may well be providing some support," said Ian Stannard, senior currency strategist at BNP Paribas.
Rate spreads support that view, moving sharply in the euro's favour.
Sterling was on the defensive as speculation that UK interest rates could fall sharply was fuelled by Bank of England Deputy Governor Charles Bean saying UK interest rates could fall to zero.
Agencies