EAMON QUINN: Fears for sterling ease over ‘Long Black Friday’ weekend

The pressure facing retailers over the ‘Long Black Friday’ weekend following the plunge in sterling since the Brexit vote could ease significantly as the euro faces the first of its own looming tests next week, according to analysts.

New political pressures on the euro could also help Irish SMEs exporting across the Irish Sea, as new figures showed the UK was so far weathering the fallout from its Brexit decision.

The upbeat UK figures come at a time when traders are trying to assess the outcome of next weekend’s Italian referendum, which could spark a political crisis in Rome.

The turnaround in the fortunes of sterling has been marked in the last two and a half weeks. Though trading slightly lower yesterday at 85.1p, the UK currency has nonetheless clawed back about half of all of its worst losses sustained against the euro since the shock Brexit vote in late June.

The rebound will likely ease fears over retailers in the Republic leaking sales to the North and to UK online retailers during this cyber-spending weekend and ahead of the Christmas spending splurge. Sterling has surged against the euro from a post-Brexit low of 91p on October 11.

At 91p, the exchange rate also threatened to wipe out plans of Irish exporting SMEs because of the headwinds they face from a weak sterling. Since then, an English high court ruling and emollient comments from prime minister Theresa May, as well as better news for the UK economy, has helped boost sterling.

British retail sales grew at their fastest rate in more than a year, according to a Confederation of British Industry survey published yesterday, as shoppers there have shown little sign of retrenching spending since June’s vote to leave the EU, despite a sharp fall in sterling that looks set to push up prices early next year.

Separately, official figures showed UK firms brushed off the uncertainty over Brexit in the three months after the referendum and increased their investment, helping to drive solid growth in the economy.

There are now also political worries bearing down on the euro, including the possibility of a no vote in the Italian referendum, which would raise fears that elections in the Netherlands, France, and Germany next year would lead to Brexit-like populist rejections of establishment politics.

David Lamb, head of dealing at Fexco, said that since October’s nadir that political factors were boosting sterling and weighing on the euro. Sterling could rise to 83p against the euro by the end of the year, but “a move to 80p would need a fresh catalyst and that could be the Italian referendum”, Mr Lamb said, adding that the Brexit issues surrounding sterling will not evaporate anytime soon.

“I think sterling can recover a bit more [and] 83p by year-end is not impossible,” he said.

Sterling was trading as high as 69p against the euro this time last year, and was at 76p on the eve of the Brexit vote in June.

Philip O’Sullivan, chief economist at Investec Ireland, which has one of the largest currency treasury desks in Ireland, said that sterling at 85p against the euro spells much better news for Irish exporters.

Consumer spending in the UK has been a “positive surprise” for the UK economy there, but sterling still faces significant Brexit-related risks, he said.


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