Blow to our exports as sterling falls on Moody's downgrade
Fears of €1.5bn loss on Irish sales as pound slides 7.3pc against euro
Published 26/02/2013 | 04:00
EXPORTERS warned last night that Irish companies will struggle to sell in the crucial UK market as steep falls in the value of sterling drive up the price of Irish goods there.
The pound dropped to its weakest level against the euro since July 2011 yesterday in the first market reaction to Moody's decision to strip the UK of its prized "AAA" credit rating last Friday night.
The British currency is expected to fall further over the coming weeks, not least because UK policy makers are thought to be comfortable with currency falls that benefit the country's exporters.
Sterling fell as low as $1.5073 yesterday, its weakest since mid-July 2010.
Traders said sellers would re-emerge if sterling showed any signs of rebounding towards $1.53.
Its trade-weighted index hit a 19-month low of 78.10. The euro rose 1.6pc to a 16-month high of 87.98 pence.
The pound is down nearly 7.3pc against the euro since the start of the year and down 7pc against the dollar.
It is bad news for exporters here, and could cost Irish companies over a billion euros in lost trade, according to the Irish Exporters Association.
"The fall in the value of sterling against the euro since January 1, if continued, will undermine the competitiveness of our goods and services exports to the UK," Irish Exporters Association boss John Whelan said.
A drop of 5pc over the course of an entire year would slash €1.5bn off the total value of Irish sales to the UK, he added.
Analysts say there is little sign of the pound bouncing back in the short term thanks to the grim economic outlook, especially with the prospect of more "monetary easing" or cash printing by the UK central bank.
"Investors will remain nervous about the pound," said Ian Gunner, portfolio manager at Altana Hard Currency Fund.
"Monetary policy will now be more significant and the minutes last week showed more easing could be on the way."
The decision by Moody's to cut the UK rating had been expected after France lost its "AAA" rating last year.
It is bad for Ireland not only because the stronger euro hurts sales but because the Moody's downgrade reflects a weaker UK economy overall.
Our hopes of emerging from the financial crisis rely on economic growth in our major trading partners, including the UK and the US, to create greater demand for Irish-produced goods and services.
In the money markets, investors are increasingly betting on longer-term weakness in the pound after the minutes of the latest meeting of the board of the Bank of England indicate that its members are willing to tolerate higher inflation in the coming years.
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