ISME fears rising euro will hurt exports to Britain and US

THE pound and the dollar continued to fall against the euro yesterday but small firms will suffer if the euro continues to grow in strength.

Small business group ISME said Britain and the US are the two big markets for Irish exporters, adding that there is a danger such fluctuations will go against them. ISME said there are concerns that the increase in exports over the last few months could now be damaged.

The dollar fell against the euro and yen yesterday after finance officials failed to reach a consensus on measures to see off what analysts said is a looming “currency war”. The pound also weakened against the euro, falling to near a five-month low, as investors speculated the Bank of England will restart its debt-purchase programme to bolster the economic recovery.

International Monetary Fund (IMF) policymakers failed on Saturday to reach a consensus on ways to head off this so-called looming currency war, but pledged to keep working toward easing global imbalances.

“The euro was given a boost after the IMF meeting, which failed to resolve the so-called currency war,” said Kathleen Brooks, an analyst for online trading company Forex.com.

There are reports the Federal Reserve may this week announce that it is adding government debt purchases to support a slow economic recovery.

Exchange rates have been in the spotlight recently with the euro gaining in strength against the dollar and the pound.

A European Central Bank policymaker has called for global co-operation which he said is needed to avoid brutal volatility in foreign exchange markets.

Guy Quaden, head ofBelgium’s central bank, hit out at the recent sharp swings in foreign exchange markets.

“We have to avoid brutal movements” on forex markets, “And so I hope ... that without delay we will have more cooperation on that field,” he said.

“We live in a world of floating currencies, but excessive volatility is bad and to be avoided by common efforts at the world level.” International tensions over currency rates have risen sharply, sparking increased talk of intervention from Asia to South America.

Yves Mersch, Quaden’s Luxembourg counterpart, said: “One should not look excessively at bilateral exchange rates. What is important is the effective exchange rate. There we see that the third quarter is not above the second quarter.”

Analyst Brooks, however, said the euro “may end up being the loser” of the currency war.

“The ECB’s stance of continuing with its plans to withdraw special liquidity facilities from Europe’s financial system is pushing up inter-bank interest rates in Europe,” she explained.

“This is in direct contrast to the UK and the US, where the prospect of further monetary stimulus from their central banks is pushing rates down to near record lows, thus boosting the single currency.”