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Sterling Strength Good For Exporters

The sluggishness of the euro area economies relative to the UK and US may well see a further weakening of the currency versus the pound and the dollar, according to Garret Grogan, Head of Long Term Interest Rate Trading, Bank of Ireland Global Markets.

According to Grogan, sterling has appreciated against the euro by 8% over the last 12 months and by 5% so far this year. As the Irish recovery has been export led, this is good news as this makes exports to one of our main trading partners look more attractive to them. “Export growth is a cornerstone of the recovery strategy for the Irish economy. This sterling strength is a boost for Irish exporters, making Irish goods more competitive in the UK marketplace,” says Grogan.

He added: “The reasons behind a stronger pound are simple. The UK economy has recovered faster than its peers and it is looking like they will be the first major central bank to raise official interest rates with some market participants looking for a move as early as this year. 

“UK unemployment hit a high of 8.4% at the end of 2011, and now stands at 6.5% which is a significant recovery of the labour market. The IMF is expecting UK growth of 3% this year versus 1.2% in the euro area, a key differentiator.”

Grogan notes that since the inception of the euro in 1999, the pound versus the euro has been as strong as 58p per euro in 2000 and as weak as 98p per euro in 2009. The current rate of 79p is significantly weaker than the average which is below 74p.

“Ireland's exports outside the Eurozone account for almost 60% of GDP so a weakening euro is of significant benefit,” says Grogan. “The US dollar has also recently started showing some signs of life as the macroeconomic picture in the US continues to improve. The US is our biggest export market, accounting for 21%, so a stronger dollar would be a major boost for exporters to that market.”

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