Irish fears focus on how low sterling will fall

Irish businesses have been put on alert about the prospects of prolonged uncertainty facing sterling and the euro — even if the UK were to vote to stay in the EU in June.

The debate about the long-term future of the UK currency has flared as the good fortune enjoyed by the many Irish exporters selling into Britain last year, at rates as low as 70 pence per euro, has reversed so swiftly.

Yesterday, the pressure on sterling continued. It was trading at one stage close to 79 pence per euro, its weakest for 14 months, marking a spectacular dive of almost 13% in just over 12 weeks.

That is important because the weak euro had in the past helped drive Irish exports and the Irish recovery. It had gone a long way to boosting exchequer coffers in 2015 from the unexpected bounty of exporting firms’ profits.

A stronger euro now threatens to erode the cost advantages of Irish exports.

A separate analysis by Investec Ireland suggested there would be both winners and losers among Irish-listed companies, if sterling were to weaken further. It said companies such as Ryanair could lose out if the slide continues.

Ryanair boss Michael O’Leary, who has clashed with Brussels numerous times, pledged the airline would campaign to keep Britain in the EU, saying that the UK outside the EU would still have to abide by the rules “if it wants to continue to trade freely with Europe”.

Companies and investors rushed to insure themselves against the chances of a Brexit, which British bank HSBC said could knock a fifth off the value of sterling. The currency resumed its fall against both the dollar and the euro.

“Just above $1.40 was a key support and we broke that,” Daragh Maher, New-York-based head of US currency strategy at HSBC, said.

“We have four months to this vote and I don’t think we’re going to have any clarity particularly on the outcome, if the market gets itself even more and more wound up and worried, then sterling will remain tactically vulnerable on the downside,” Mr Maher said.

“In the near term, an actual Brexit would likely see more downside pressure on sterling, which would be negative for Irish exporters to the UK,” said Investec.

“That said, the extent to which sterling could sell off from here is unclear, as some of the recent moves we have seen in the currency markets are clearly related to the risk of Brexit occurring,” the bank said.

On stock markets, Investec believes Paddy Power Betfair, DCC and Grafton could be among the list of “Irish winners” if sterling falls further because they report in sterling but have large operations earning euros. Ferry firm ICG would benefit if duty free were re-imposed under Brexit.

Potential Irish equity losers, said Investec from an “accounting perspective”, include Origin Enterprises, C&C and Ryanair.

Under a full Brexit, “for Ryanair, we believe any impediment to the free movement of passengers would likely add costs, albeit for the whole industry and therefore be likely passed on to customers,” said the bank.

Twenty-nine out of 34 economists surveyed by Bloomberg said sterling will drop to $1.35 or below within a week if the UK votes to leave the EU, levels last seen in 1985. The costs of insuring sterling against sudden swings has also markedly increased.

Additional reporting: Reuters and Bloomberg