‘Strengthening euro will put pressure on farmgate prices’
The recent strengthening of the euro against Sterling is serving to erode the buoyancy of Irish food exports to the UK, according to ICMSA General Secretary John Enright.
“There is little doubt that the relative weakness of the euro over recent months has helped to bolster milk and other food commodity prices in Ireland,” he said.
“Had the euro been at more traditional values, farmgate returns would have been between 2c/L and 3c/L below what was actually the case. So, yes, exchange rates are critically important, particularly when commodity prices are at inherently low levels.
The euro is currently trading at 74.6p Sterling: four months ago the equivalent figure was 69.30p, equivalent to a 7.14% strengthening of the Euro.
Investec Chief Economist Philip O’Sullivan confirmed that the money markets are pretty volatile at the present time.
“But where Irish exports and imports are concerned, the relative values of Sterling, the Euro and the US dollar must be considered together,” he said.
“The Bank of England has just confirmed that the Consumer Price Index for September fell by 0.1% year on year. Prior to this, the expectation had been that the UK would start to increase interest rates in the near future.
“But given the consumer data now available, this decision may be put on the back burner for a number of weeks. And the same approach to interest rates may well be taken in the US. The Federal Reserve has recently indicated its concerns about the current state of the world’s emerging markets.”
Given these trends O’Sullivan believes that the euro will, almost probably, flat line against Sterling and the US dollar over the coming weeks.
“But once the Bank of England and the Federal Reserve decide to strengthen interest rates, this may well lead to a fall in value of the euro against Sterling and the Dollar,” he said.
“But this may still be a number of weeks away and we have advised our clients to hedge accordingly.”
IBEC Senior Economist Ger Brady agrees with this analysis.
“But, in relative terms, the potential for Irish companies to do business in countries around the word remains very strong. In relative terms they are 8% more competitive, from an exporting point of view, compared with 12 months ago,” he said
“But interest rates in the UK and the US will have a major bearing on the value of the euro over the coming months.