It's ironic that Irish exporters face more pain as Sterling gains from Brexit deal optimism

A stronger British currency implies that selling goods and services into Britain becomes less competitive

Sterling has rallied against the euro on hopes for a Brexit trade deal that would lift the threat of an economic siege for Ireland, north and south.   

Ironically, however, the gains by the UK currency will increase the pain in the short term for Irish food and drink exporters and other jobs-rich SME firms who make a living selling their goods and services across the Irish Sea.  

Ever since Britain voted to leave the EU in the summer of 2016, currency markets have been calling the odds on the chances between meeting a deal, and the fears of a crash-out Brexit.   

From trading at 73p on the eve of the 2016 referendum, Sterling slumped at one stage to 93p, when it appeared London had opted to leave without a deal. 

A departure under such terms would involve the economic and political disaster of Britain reimposing a hard border in Ireland. 

Despite the high stakes, Sterling's slump was a boon for Irish agri-food firms and other SMEs which rely on the large British population to buy their good and services.               

Britain formally parted ways with the EU institutions at the start of the year, but it left without having agreed to a comprehensive trade deal, and for political reasons, the London government set its own deadline to end the transition period at the end of December. Even with time running out, Sterling has rallied to reflect optimism that a deal will be done. 

But a stronger British currency implies that selling goods and services into Britain becomes that little less competitive and more difficult for Irish exporters, regardless that the outcome could have been a good deal worse.       

Conall Mac Coille, chief economist at Davy, said Sterling could rally further in the next week should UK and EU politicians indicate that a deal is close. 

But he points out that markets will likely scrutinise the scope of any free trade deal because there will be long-term costs for Britain outside the EU, no matter the successful outcome of the talks. 

Britain, by leaving the EU, has also caused unnecessary uncertainty over access to continental markets for its huge financial services industry. 

That industry pays a lot of Britain's bills, in particular, at a time when the country faces paying back the huge costs and controlling the budget deficits necessarily built up in its fight against the Covid-19 pandemic. 

The British economy has been among the hardest-hit major economies in the world from Covid. 

Sterling will likely rally further against the euro in the coming days, assuming success in the talks. 

But the currency is unlikely to rebound significantly, as markets look ever closer at the performance of a Covid-damaged British economy outside the EU. 

And at around 89p, Sterling is still trading at historically low levels, Mr Mac Coille notes. 

Down the years, Irish exporters have had to cope with a lot worse.