Irish exporters eyeing the British market got some relief yesterday as sterling halted its slide against the euro for the first time in three days.
Sterling was trading higher at 80.75 pence per euro, after reaching 81.17 pence on Thursday, the weakest since June 2014.
The UK currency halted a three-day run of declines, despite UK official figures that showed manufacturing production in February fell sharply.
It was instead boosted by a rise in commodity prices.
However, Irish exporters have lost a huge amount of price competitiveness in the last five months as fears over the UK voting to leave the EU on June 23 and a potential British economic slowdown dragged sterling lower from 69 pence per euro last November.
As much as 16% has been stripped from the price margins of Irish exporters, and Irish analysts warn that it could get worse.
Ryan McGrath, a senior trader at Cantor Fitzgerald Ireland, said that sterling is facing the “dual headwinds” from Brexit and because the next potential rise in UK interest rates has been extended out to 2017 at the earliest.
“The markets are trying to take on board to price-in the potential effects of a Brexit,” said Mr McGrath. “It is unclear whether markets have fully priced in a Brexit risk, and if the UK were to leave the EU, we would expect it to weaken close to 90 pence.
“But if, on June 24, people wake up and the UK is still in the EU, it could jump aggressively to 75 pence.”
Mr McGrath said markets are looking at every headline — such as the revelation of British prime minister David Cameron’s link to an offshore trust — and trying to evaluate whether it will boost one side or the other in the British ‘in-out’ referendum divide.
“We do not see any let up in pressure for Irish exporters before the vote,” he said.
Merrion Stockbrokers chief economist Alan McQuaid said Mr Cameron was unlikely to resign over the admission that he gained from his late father’s offshore investment fund but added that the “negativity” surrounding the revelation would impact sterling regardless.
Similarly, the “political fallout” likely to ensue after the June 23 referendum will likely weigh on sterling in the following months.
“You could argue, irrespective of what happens in the referendum, that sterling will remain under pressure because there will still be a fallout politically because of all the shenanigans going on within the Conservatives,” Mr McQuaid said.
“However, I still think if they vote to stay in the currency, it will appreciate.”
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