The dollar dropped close to all-time lows against the euro yesterday as the market's acceptance of a weaker US currency grew in force, despite EU policymakers' efforts to convince them of the contrary.
The breach of major technical levels against the yen in overnight trade meant the dollar found little support as European markets opened. It quickly fell below $1.18 against the euro, thus prompting analysts to focus on the record $1.1936 level last reached in May. As European markets closed last night, the euro was hovering around $1.1809.
The decline, which continues to be driven by calls for currency flexibility made at the G7 summit three weeks ago, has seen the dollar lose more than 10 US cents against the euro since the start of September.
The weakness has been maintained despite the efforts of European Central Bank governing council members to persuade markets that the leading industrial nations were not seeking a cheaper dollar when they made their G7 statement.
Mr Yves Mersch became the second ECB policymaker in as many days to say the huge Asian trade surpluses with the US, and these countries' efforts to stop their currencies appreciating, were the target of the September 20th communique from Dubai - not the dollar or the euro.
Bundesbank president Dr Ernst Welteke said on Tuesday that markets were wrong in reading the G7 statement as a signal to sell the dollar.
Commentators are now predicting that the US currency could fall to $1.20 against the euro before the end of the year, thus placing renewed pressures on Irish businesses that sell their products in the US.
Ulster Bank financial markets economist Mr Niall Dunne expects sterling to create similar problems, forecasting that the British currency will drop to 72p against the euro over coming months, as it trades in line with the dollar. Sterling was trading at 71p last night.
The chief executive of Irish Exporters' Association, Mr John Whelan, said the strengthening euro could have a significant impact on the Republic's indigenous exporters who were already having "a horrendous year".
"When we take a dip in our exports, it cascades down heavily through the economy," Mr Whelan said.
Analysts at Bank of Ireland said businesses that risk losing out on the back of currency exposure should consider hedging over coming days to avoid locking in at higher levels.
Mr John Moclair, head of domestic corporate sales with Bank of Ireland Treasury and International, said that exporters to the US should look at protecting themselves against rates above $1.20 by locking into structures that also allow them to avail of euro weakness should this occur.
