Deep concern among exporters over sterling plunge as market bets against UK

No-deal Brexit fears hit pound

Decline: The pound continues to fall against the euro and US dollar over Brexit concerns
Decline: The pound continues to fall against the euro and US dollar over Brexit concerns
Donal O'Donovan

Donal O'Donovan

Sterling tumbled towards 92 pence to the euro yesterday, as financial markets prepared for the traditional August lull by ditching the pound and other sterling assets in a bid to hedge against the chances of a disorderly no-deal Brexit.

The Irish Exporters Association (IEA) said it was deeply concerned about the effect that the recent adverse movement in the Euro-Sterling exchange rate may have on Irish businesses exporting to the UK.

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The sharp drop in the Pound over the past 48 hours indicates the likely impact a no-deal Brexit would have on the exchange rate - adverse and swift, said Simon McKeever, Chief Executive of the Irish Exporters Association.

“We note with deep concern the trajectory in the Euro-Sterling exchange rate over the past 36 hours. The profitability of Irish companies exporting to the UK is heavily dependent on the exchange rate – particularly at these levels.

"This recent sharp adverse movement, caused by the increased likelihood of a no-deal Brexit, is a serious threat to many Irish exporters if not sufficiently recognised,managed and mitigated.

"We call on all Irish exporters trading with the UK, to assess their exposure to the EUR/GBP exchange rate without delay and if necessary, consult with their financial partners on the appropriate steps to mitigate their risks.”

British prime minister Boris Johnson has ratcheted up his rhetoric since taking office last week, locking the UK increasingly in the direction of an exit on October 31 from the EU without a withdrawal agreement.

Mr Johnson said yesterday that Britain would leave the EU on October 31 "no matter what", giving the pound its latest push lower.

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Sterling is down by 2.5pc since Mr Johnson took office.

Bank of Ireland's head of FX trading and strategy Lee Evans said sterling had fallen to its lowest levels of the year against the euro, and its lowest levels in almost two and a half years against the US dollar.

"With talks between the EU and new UK PM Boris Johnson seemingly at a standstill over the Irish backstop, concerns about the increasing probability of a no-deal scenario have weighed heavily on the pound," he said.

Reports over the weekend that the UK government is stepping up its planning for an exit in October have seen euro/sterling trade towards 92p. The next levels of focus for currency markets are the August 2017 high of 93p, and the 2016 'flash crash' high of 94p, he added.

Financial markets had, up until recently, seen the chances of a no-deal Brexit as relatively remote, not least because many experts believe it would severely damage the British economy.

Many analysts now see a UK general election as likely, which Mr Johnson may bet will give him the numbers to break a current deadlock in the British parliament.

"The tail-risks of either a general election or no-deal Brexit were seen as a lower probability earlier, but are increasingly getting priced in as a base case scenario," said Supriya Menon, a strategist at Pictet Asset Management.

There seemed to be less room for compromise between London and Brussels, she added.

Here, the weaker pound will hit Irish exporters, in particular in low-margin sectors like food and drink.

Consumers are also likely to be tempted north of the Border and online to UK retailers.

Over the past year, Irish exports, including to the UK, have largely defied the weaker pound, but imports of second-hand cars have hit businesses here.

The Euronext Dublin stock exchange was down 2.21pc yesterday, with AIB and Bank of Ireland among the day's big fallers.

Irish Independent

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