Boost for exporters ahead of ECB monetary stimulus plan

The euro headed for its biggest monthly decline against the dollar since March, and may fall sharply again in the coming months against sterling too, as economists unanimously forecast that the ECB will unveil additional monetary stimulus this week.

Boost for exporters ahead of ECB monetary stimulus plan

Falls for the currency of this scale have already provided what is essentially a turbo-charge to the Irish economy, as exporters to the US and Britain are able to sell goods and services at hugely competitive prices.

The corollary is tourists to Britain and the US find that their euro is worth much less than a year ago. Investec Ireland yesterday reiterated its forecast that the currency will fall steeply again against sterling early next year, to 67p (95c), before rising back above 70p next spring.

It has been flirting with the 70p level ahead of the ECB meeting on Thursday. The bank’s chief economist Philip O’Sullivan said that though some of the steep falls were quite surprising ahead of the ECB meeting, the weak currency was providing a big boost to Irish firms exporting to the US and UK.

“On top of that with their economies expanding, demand is pretty robust from both the US and UK,” he said.

The euro faces a further squeeze amid expectations that the US central bank —the Federal Reserve — will raise interest rates, at a time when amid tepid growth in the eurozone, the ECB is seeking to pare rates.

Yesterday, the 19-nation currency slid to the weakest level since April versus the dollar as investors fully priced in a 10-basis-point cut to the ECB’s deposit rate on Thursday.

The euro was trading yesterday at $1.0583, having weakened 3.9% in November, its biggest loss since a 4.2% decline in March, when the ECB embarked on its €1.1tn-euro asset-purchase programme.

It may weaken to $1.04 in the near term, said Alvin T Tan, a strategist at Societe Generale. That’s not such good news for holidaymakers. But Irish-based TransferMate, a global payments firm, said the euro has gained against the Australian, New Zealand and Canadian currencies, making spending on arrival in those countries a little less expensive.

Almost 80% of respondents to a Bloomberg survey said the central bank, led by president Mario Draghi, will decide on Thursday to prolong its asset-purchase programme.

“It looks like the market has priced in a triple ease —cutting the central bank rate plus increasing the amount of quantitative easing, plus increasing the time span of quantitative easing,” said Greg Anderson, global head of foreign-exchange strategy at Bank of Montreal.

* Additional reporting by Bloomberg

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