Monday 18 December 2017

Further fall in sterling threatens exporters

STERLING may have further to fall against key rivals despite declining more than any other major currency in recent months, according to analysts.

The Irish Exporters Association said last month that every 5pc decline in the pound against the euro knocks €1.5bn off Irish exports.

Both bond investor Pimco and hedge fund FX Concepts bet yesterday that the pound has further to fall against the dollar after a 6.7pc decline in February.

The UK currency remains 2.3pc overvalued, based on an OECD measure of purchasing power parity.

The slide reflects growing speculation that the Bank of England will boost stimulus while also debasing the currency as the UK risks an unprecedented triple-dip recession.

Current governor Mervyn King, who gives way to Bank of Canada governor Mark Carney in July, has said a weaker pound would help rebalance the economy.

"You ain't seen nothing yet," said Neil Williams, chief economist in London at Hermes Fund Managers, which oversees about $42bn.

"If the world believes there will be significantly more stimulus coming, which I expect, the pound is likely to be under further pressure."

The pound fell to 88.15 pence per euro last week, the weakest level since October 2011, before trading at 86.08 pence per euro yesterday. It has depreciated versus the 17-nation currency for seven straight months.

"It is hard to envisage a scenario where we would want to be long sterling in the next six to 12 months," said Thomas Kressin, head of European foreign-exchange at Pimco in Munich. A long position is a bet an asset will rise in value.

"There will be more tolerance for a weaker pound as a way to support growth." (Bloomberg)

Irish Independent

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