Call to help exporters as sterling hits 10-month low
Sterling slumped to a 10-month low against the euro yesterday - dealing a fresh blow to Irish exporters and prompting renewed calls for State aid to the agri-food sector.
Fianna Fáil finance spokesman Michael McGrath urged the Government to provide greater financial support to businesses exposed to the currency swings, warning the upcoming budget must introduce measures that "help insulate firms from the effects of this exchange rate trend".
"The weakening of the pound and the strengthening of the euro has direct consequences for the Irish economy. Compared to the exchange rate when the UK voted to leave the EU in June 2016, the stark reality is that Irish exports to the UK are now 18pc more expensive," he said.
The UK currency yesterday plumbed depths not seen since the October 'Flash Crash', when the pound momentarily collapsed - sending it to over 94p against the single currency.
After UK inflation figures undershot expectations, further eroding the likelihood of a rate increase by the Bank of England, sterling slid by 0.5pc, taking it to 91.34p against the euro. The pound later regained some ground to close at just over 91p.
Justin Doyle, a senior treasury dealer with Investec Ireland, described the sharp currency move as "not good for the Irish economy and particularly our export sector". But he argued "we are in a new zone" with the euro likely to remain strong against sterling "for a reasonable period of time". He expects sterling to hit 92-93pc against the single currency over the next six months.
That is slightly weaker than the range predicted by Bank of Ireland's global markets team, which anticipates sterling will trade at the mid 90p level.
Yet both those views pale against Morgan Stanley forecasts earier this week that the euro will be worth more than the pound by the end of March.
While that stance sharply diverges from the market consensus - although HSBC has also predicted the currencies will hit parity - the increasingly bearish views on sterling stem from the stronger than anticipated improvement in the eurozone economy versus the mounting challenges facing the UK as it grapples with Brexit and relatively high inflation.
Markets are also betting ECB chief Mario Draghi will announce an easing next month to the quantitative easing that has kept rates at record lows.
John Moclair, head of global customer group at Bank of Ireland Global Markets, said Irish importers have "taken advantage" of the strengthening euro and he insisted there was "little reason" for the BofE to raise rates in the short term with Governor Mark Carney, pictured, "clearly prioritising growth over inflation".
But the swings in the currency continue to batter Irish food and agri exporters, with Ibec's director of FDII Paul Kelly warning businesses are facing an "extreme currency situation". He said the organisation is again calling on the Government to mitigate the problem with the introduction of an "enterprise stabilisation fund".