Weaker euro could boost small Irish exporters

A continued weakening of the euro could provide a boost to small Irish export companies, but volatility in the currency markets may still have the potential to produce trading headwinds, a leading trade expert has said.

The euro has weakened against the dollar and sterling as currency traders have become spooked on the back of rising uncertainty over the timeline of ECB interest rate hikes and concerns over energy supplies and fresh Covid waves across Europe.

The single currency slumped on the back of Austria becoming the first western European country to reimpose full Covid lockdowns and Germany not ruling out doing the same.

However, the currency movements could offer a mixed bag of benefits and disadvantages, according to John Whelan – a leading independent trade consultant and former head of the Irish Exporters Association. He said a weaker euro against sterling may boost Irish exports.

Meanwhile, a weak euro against the dollar would benefit US multinationals based here, in that it would bring down the cost of production in Ireland and underpin the logic around Ireland as an attractive location for overseas investment, Mr Whelan said.

However, a stronger dollar could also feed a further rise in oil and energy prices, which, he said, would feed its unwanted way into all businesses.

Mr Whelan also said if Britain were to exit from the Northern Ireland Protocol, sterling would “plummet” and Irish exports to the UK would be “hammered”.

The euro hit a 16-month low against the dollar this week and the lowest point against sterling since early 2020.  Sterling has been helped by positive UK employment and retail sales data this week.

Traders are, in large part, concerned that ECB monetary policy will begin to lag that of its major peers – with the US Federal Reserve and the Bank of England likely raising interest rates before their eurozone counterpart.

ECB president Christine Lagarde more or less ruled out interest rate hikes next year, earlier this week. The ECB shouldn’t tighten monetary policy too soon - even in the face of “unwelcome and painful” inflation, Ms Lagarde said in updated remarks.

The bank is taking concerns about rising prices “very seriously,” she told the Frankfurt European Banking Congress, reiterating that she doesn’t envisage an increase in interest rates next year.

“We must not rush into a premature tightening when faced with passing or supply-driven inflation shocks,” Ms Lagarde said. 

“At a time when purchasing power is already being squeezed by higher energy and fuel bills, an undue tightening would represent an unwarranted headwind for the recovery.” 

She said the prospects for medium-term inflation are better now than they were before the pandemic, when the ECB struggled to bring it up to its 2% target.

“We should continue nurturing these forces by not withdrawing policy support prematurely,” she said.

-additional reporting Bloomberg