Euro falls back against the dollar

THE euro fell back yesterday, cutting into its recent rally against the dollar, on the back of poor economic news.

After scaling new four-year highs on Tuesday, a German report showing unemployment had plummeted to its highest level in five years, sent the euro lower and it closed at €1.1344 against the dollar.

Irish business interests breathed a sigh of relief at the brief respite from the euro’s uphill climb but acknowledged the threat to the competitiveness of Irish companies exporting abroad had not yet receded totally.

The euro has rallied 8% this year putting huge pressure on exporters.

Davy Stockbrokers chief economist Robbie Kelleher said the change in the exchange rate was the equivalent of an appreciation from €1.09 to €1.45 in the old $/IE£ exchange rate and an appreciation from 78p to almost 90p in the old GBP/IE£ exchange rate.

“This will seriously compound the problems facing the traded sectors in Ireland. These sectors were already showing signs of significant weakness in the latter months of 2002 and the early months of 2003.

“It also raises concerns of a translation impact for earnings estimates in the Irish market. More than 50% of earnings originate outside the Irish economy, the bulk of them in the US and UK.”

Irish exporters association’s chief John Whelan said the very rapid movement of the dollar had caught most exporters unawares and many were in the situation where they have run out of forward hedging.

Mr Whelan said most companies were experiencing a double hit where they were being penalised in the US and margins were being squeezed, but when they retrenched to European markets, US forms were in a far more competitive position.

“There has been a significant attempt by Irish software companies to refocus back on the British and European markets. Sterling has also moved down but nothing like the dollar.”

The food sector, including companies like Kerry, Glanbia and IAWS, has been especially hit according to Mr Whelan.

They have significant trade in the US and will be hit on translating back their earnings. This will reverse the gains made in 2001.

The euro’s 1.2% slide against the yen, the biggest since February 18, erases almost all of its advance in the past six days as analysts said Japanese investors sold euros on speculation the European Central Bank will lower interest rates as soon as tomorrow.

An ECB rate cut “may chill flows from Japan to Europe,’ said Michael Malpede, a foreign exchange analyst in Chicago at Refco Group Limited.