Exporters in rush to pocket profits as euro plummets against sterling
THE euro plunged to a 22-month low against sterling yesterday as surging unemployment and weakening factory output battered the single currency.
The British pound hit 81.3 pence per euro yesterday, the strongest level since June and a welcome boost for Irish exporters who sell into the UK market.
The pound strengthened at the fastest pace in a week against the euro ahead of today's European Central Bank meeting in Barcelona.
The immediate prompt for yesterday's rise in sterling was data that showed the UK construction industry declined at a slower pace in April than expected, while new mortgage approvals unexpectedly rose in March.
That news came at the same time as dire economic data from inside the euro area, including news that unemployment has hit 10.9pc, the highest level for 15 years. Markets were especially rattled by figures that showed unemployment in Germany rose unexpectedly.
The latest UK news has boosted a belief among some money managers that official figures published a week ago, which show the UK is in recession, may be flawed.
That's only part of the story, however, with sterling also up on increasing demand from international investors who see the UK as a haven while nervously looking to sell out of the euro, based on fears that Italy and Spain in particular mean the euro area is on the verge of a new crisis.
Eanna Black of Investec in Dublin said Irish exporters who are paid in pounds are taking the opportunity to pocket gains by converting profits back to the euro at the current favourable rate.
He is seeing some market plays bet on even further sterling gains, but urged a cautious approach from Irish industry.
"We are at good levels right now compared to an average of 85.7 pence last year and this can move back quickly," he said.
The strengthening of sterling is already having an impact on exports -- feeding into an unexpected return to growth in exports to the UK of 19pc in the first three months of this year.
That is far ahead of an overall increase in exports of 3.6pc, which the Irish Exporters Association said is below the levels needed to create jobs.
Meanwhile, in the money markets there is no anticipation of any change in the ECB's benchmark interest rate when the bank's governing council meets today, but the weakness in the eurozone means investors will carefully parse Governor Mario Draghi's language at a press conference later in the day.
The euro area interest rate of 1pc is close to an all-time low, but it is double the UK rate of 0.5pc and could be open to further cuts as the year goes on, analysts said.