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Thursday 2 October 2014

'Benign' environment for exporters as the euro rises

Published 28/08/2014 | 00:00

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European Central Bank President Mario Draghi
European Central Bank President Mario Draghi

The euro rose from its lowest level in almost a year yesterday after Germany's finance minister said comments by European Central Bank President Mario Draghi advocating support for euro zone fiscal policy were "over-interpreted".

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The euro was up about 0.2pc from the weakest level since last September versus the dollar ahead of figures due tomorrow that economists predict will show German inflation stalled. That in turn will bolster bets the European Central Bank (ECB) will loosen monetary policy. ECB officials meet next week.

Specialist bank Investec said the currency environment was looking benign for the short to medium term, which will give certainty to Irish exporters operating in both sterling and dollar markets.

"We're at a very beneficial level for exporters. We're looking at 12-month lows in the euro-dollar rate and nearly two-year lows in the euro-sterling rates," said Justin Doyle of Investec's treasury desk.

"We can all thank Mr Draghi for that. Low inflation, high unemployment, low growth and it looks like the core economies are starting to hurt as well. We have important inflation figures tomorrow and we have unemployment data as well, so the ECB will obviously be keeping a very close eye on that.

"It's looking very benign. There hasn't been any major erratic moves and we don't see anything."

Warning

Mr Doyle said they see the dollar at $1.30 and sterling hovering around the 80p mark.

However, he warned there could be a sharp movement in sterling if the polls start to turn in favour of Scottish independence.

The prospect of further stimulus, through an asset-buying programme known as quantitative easing, also buoyed stock markets. European shares rose again, building on two days of strong gains, and Wall Street was expected to open higher.

Fuelling the speculation of ECB easing, Italian Economy Minister Pier Carlo Padoan said Italy must lower its growth forecast for this year, and German consumer sentiment fell for the first time since last year.

ECB President Mario Draghi's call last week for monetary and fiscal policy action has markets betting further steps may come as soon as the central bank's next policy meeting, on September 4. Mr Schaeuble however, cooled some of the speculation, saying the comments were "over-interpreted".

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