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Stronger dollar to hike the price of US holidays and exports


New York

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Central Park, New York - the cost of holidays to New York and other American destinations will rise

Central Park, New York - the cost of holidays to New York and other American destinations will rise


New York

The price of consumer goods from iPads to bananas is set to soar as currency experts predict the dollar will become stronger than the euro.

Irish holidaymakers looking to travel to America this summer also face rising costs, while the price of oil jumped as the US Federal Reserve moved toward its first rate hike in almost a decade.

However, a stronger dollar would boost Ireland’s economic recovery, with the export and tourism industries poised to capitalise.

That would be a game-changer in terms of how goods and services are traded across the Atlantic. It would impact everything from small purchases on eBay to vast oil deals.

The US currency tumbled in value last night after the US Federal Reserve signalled the possibility of an interest rate hike – the first since the financial crisis. But many expect that to be a short-term blip and that the dollar will continue to strengthen against the euro.

At a basic level, it means the cost of holidaying in the US will be even more expensive. Anyone buying goods priced in dollars will also face higher costs.

However, the weaker euro would be of huge advantage to Irish food companies and pharmaceutical firms that sell into the US.

But meanwhile, Ireland’s controversial corporate tax regime faces fresh challenges. Changes in the UK budget mean that some multinational companies based in Ireland face a new British tax on profits from UK sales.

And the EU is proposing fresh reforms to make it harder for companies to avoid taxes. An Action Plan on Corporate Taxation will be presented before the summer, focusing on a “fairer and more efficient” system.With the pound also hitting a seven-year high against the euro last week, it is the perfect time for people living in the US or UK to book holidays in Ireland or the rest of the eurozone.

The 7.3 million overseas visitors to Ireland in 2014 was the highest number in six years.

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But Tourism Ireland is predicting that 2015 will be the best year ever as it aims to welcome 7.74 million visitors - surpassing the previous record in 2007.

Economist John McCartney, director of research at Savills, said the euro's ongoing decline heralds big opportunities for the Irish tourism sector, as it increases the purchasing power of visitors from Britain and the US.

"Tourism is like any other service export as people increasingly come into the country. As the euro weakens we become more competitive, so that's driving tourist numbers. Our goods and services become cheaper."

The strong dollar is already having an impact on US companies selling their products overseas, as it means they are becoming more expensive for consumers.

The dollar has been trading at multi-year highs against a range of currencies, partly as a result of the strengthening recovery in the US, and the prospect of an interest rate hike by the Federal Reserve.

Emergency measures being taken by the European Central Bank to kick-start the recovery in the eurozone have also weakened the euro.

The last time the Fed raised rates was in 2006. It yesterday downgraded forecasts for growth and inflation, and the dollar fell sharply.

Last night, €1 was trading at $1.08.

In its statement following a two-day meeting yesterday, the Fed's policy-setting committee repeated its view that job market conditions had improved.

While it put a June rate increase on the table, it also allowed the Fed enough flexibility to move later in the year, stressing any decision would depend on incoming data.

The immediate impact was to send the dollar tumbling, as the Fed also slashed interest-rate projections over the next few years, and downgraded its outlook for the US economy.

"The message from the Fed is that the economy is not there yet to tolerate an imminent rate hike, which should reduce the chance of the dollar reaching parity against the euro any time soon," said Joe Manimbo, an analyst in Washington DC.

Simon Barry, economist with Ulster Bank, said items priced in dollars could be about to get a little more expensive if the dollar strengthens further.

"A weaker currency means that the price of imported goods that we buy from overseas will come under some upward pressure," Mr Barry said.

"If we have imports of consumer goods and consumer gadgets that might be coming from Asia, for example, but which might be invoiced in dollars, the fact is it will take more euro to buy those dollars.

"That's going to put a little bit of upward pressure on the price that we pay for imports."

But he stressed that a strengthening dollar was good news overall, as it signalled the strength of the recovery in the US, the world's largest economy.

"The US economy is normalising and that's good news for everybody. The reason why this is under discussion... is because the US economy has made significant progress.

"A US recovery that is looking more assured is good news for the entire world economy, including Ireland," he said.

Meanwhile, Mary McKenna, managing director of Dublin-based Tour America, said Irish holidaymakers heading to the US would feel the pinch in their pockets if the dollar continued its rally.


"I've been watching currency for 20 years and I've never seen what's happened in the last few months," Ms McKenna told the Irish Independent.

"We're 30pc up on business for 2015. But where I see the impact is 2016, if it [the dollar] goes into parity or below, I think it will have an impact on that. The client in some cases is not focused on currency, even though they should be.

"They're looking for the whole experience and it mightn't be on the top of their mind. It might be when they get home and they see their credit card that they haven't got that tremendous value for money."

The rising dollar is also a concern for some companies, including banana producer Fyffes. Goodbody stockbrokers predicted the company's costs this year could rise 6pc because of the stronger dollar.

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