Weaker euro to help drive agri-food exports

A weaker euro should help drive Irish agri-food exports, according to Garret Grogan, Head of Interest Rate Trading at Bank of Ireland Global Markets.

The most significant trend in Foreign Exchange (FE) markets so far this year has been the continued weakening of the euro against both US dollars and Sterling.

The euro has depreciated almost 19% versus the dollar since May of last year and has dropped over 12% versus Sterling since March 2014.

“Export growth has been a cornerstone Ireland’s recovery strategy, and as such a stronger US dollar and UK pound is good news, as it makes Irish products more competitive internationally,” said Grogan.

“The US and the UK are by far Ireland’s largest trading partners outside of the Eurozone, and as such improved exporting figures have had a significant impact on Irish growth rates. For example, if a commodity price was constant in Euros and was sold to the US the producer would receive nearly 20% more than they did last May.

“When you consider how tight margins are, currency moves are very important. However, a weak currency is a double edged sword, in that it also makes imports from non-euro countries more expensive for domestic consumers.

“Furthermore, the weaker euro has meant that Irish consumers have not felt the full benefit of the global oil price drop, as oil is priced in US Dollars and the euro depreciation has eroded this saving.

“As with any large market move, the trend for a weaker euro has left winners and losers in its wake, however on balance for an export led economy like Ireland the weaker euro is definitely a boon.

Going forward, Grogan believes these trends look set to continue, albeit at a slower pace.

“In response to the relative performance of the global economy, Central Banks in the US and UK are beginning to talk about raising interest rates, whereas the European Central Bank are going the opposite way, engaging in further monetary easing through their QE programme announced during January.

“This should further weaken the Single Currency but how much of this impact has already been anticipated? A prudent message to Irish exporters would be ‘make hay while the sun shines’, because as anyone with experience of the FX market knows, the value of any currency rarely stays the same for long.”

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