Three years have passed since shops in Clones, Co Monaghan, declared they would accept payment in three currencies: euro, sterling and the old Irish punt.
“Since it started the town has taken in £34,000 punts, which is €43,000, and we have €4,000 in vouchers in constant circulation,” says shopkeeper Tony Morgan, instigator of the idea.
As a result of the “Embrace the Punt” initiative, the Border town made news at home, as well as in Sweden, Russia, China, Germany and Britain. Now Clones is re-embracing sterling as the euro’s weakness means shoppers can get better value by spending it in the Republic.
“At the moment we are giving €1.30 to the pound,” says hotelier Patrick McCarville. To ensure the sterling crowd don’t think they’re getting a “bad rate” and opt not to spend, the rate can change daily.
In the last few weeks, according McCarville, an increasingly favourable exchange rate has added to an already growing trade at the Creighton Hotel.
Generally it has “a good Northern customer base” day by day, he says. But sterling’s increased buying power means they are “more inclined to come in with their sterling and the rate encourages them to get it exchanged”.
He keeps an eye on the rate, checking daily in recent times as the euro weakened 10 per cent against the British currency since January.
“When there is more [sterling] coming in we are making sure not to give a bad rate. Last week we had family groups coming in for Sunday dinners,” he says. “This weekend we have a concert on and I got a call about bringing a group from Fivemiletown [in Co Tyrone] That definitely would not have come this way unless the rates were good.”
American visitors
What is good for McCarville is good for hoteliers all around the State. With the euro down 16 per cent against sterling in the past year and the dollar down 25 per cent, British and American visitors have received a big boost to their spending power.
“From the dollar point of view and sterling point of it’s very positive because they’re our two key markets,” says Pat McCann, chief of Dalata, which operates a chain of 46 hotels in Ireland and Britain.
“We’ve had record performances out of US last year, and we would expect to achieve that again this year. The UK turnaround started last year. We started recovery and that continues.”
These are crucial weeks, as American holiday agents typically make block bookings in Ireland towards the end of the month.
As new data points to resurgent growth in 2014, firms across the board in Ireland are taking advantage of the euro’s weakness and the lower the price of oil.
The currency movements mark an immediate spinoff from the European Central Bank’s new bond-buying scheme, whose objective is to prod the moribund euro zone economy into life in the course of the next 19 months. For Ireland, the development comes as recovery strengthens on the back of the uplift in domestic demand.
The big currency winners are exporters and potential exporters, but importers from Britain and the US face higher costs. That, in turn, has led importers to seek alternative supplies locally and from other euro zone countries. With that comes potential to stoke inflation, yet the sense remains that conditions in currency markets are more advantageous than they have been for a long time.
“This is a once-in-a-decade event for corporates,” says Gary McCarthy, chief of market analytics company ActivateAlpha.
“You’re looking at Dax, perceived as export poster child for Europe,” he says of the main German equity index. “The Dax is up 20 per cent since the beginning of the year. It’s a bull run in its own right, in two months. If you’re to do a read across, the next big exporter in Europe is Ireland.”
McCarthy says this augurs well for groups that have made big US acquisitions such as Kerry, Glanbia and CRH.
David Donnelly, senior investment analyst at Cantor Fitzgerald Ireland, sees particular advantage for the likes of Glanbia. “The US is a critical market for Glanbia – roughly 70 per cent of earnings before interest tax depreciation and amortisation is derived in the country – and although earnings are reported on a constant currency basis, euro weakness provides a real tailwind,” he says. “Glanbia has four of the top five energy drinks in the US, and is the number one producer of American-style cheese, which is found in circa 98 per cent of US households.”
If the food sector is an obvious beneficiary of the euro’s weakness, Donnelly says bookmaker Paddy Power and packaging firm Smurfit Kappa are also in line to gain.
“Thirteen per cent of Paddy Power operating profit comes from UK retail stores alone,” he says. “At an operating profit level, total UK exposure for the group ex-Italy is 52 per cent. As a result, management expects that even at current exchange rates, earnings should benefit from a €5 million boost in 2015.
“One of the more beneficial elements of euro weakness for Smurfit Kappa is the impact it has on its American peers that are exporting paper products into Europe. The strength of the dollar makes these products are less competitively priced versus those produced by Smurfit.”
But there are losers too.“Among those that face negative headwinds on the index are the energy names. A stronger dollar traditionally weighs on commodity prices, and the exploration companies on the Iseq are already contending with lower oil prices,” says Donnelly.
Moreover, McCarthy of ActivateAlpha says current trends are not good for utilities and firms with revenues only in Ireland. “Nobody’s interested,” he says.
Increased spending power
Back in Clones, Supervalu owner Bernard McNally says the early shoots of increased spending power were visible last year but that it was still a “very quiet” year. “This year is going better comparing it week on week. The sterling conversion is definitely a conversation in the town and we are seeing an increase in sterling at the tills.”
The fluctuating nature of the exchange rate means that businesses must be reactionary, and play the best hand at any time. “Geographically our closest competitor is a Supervalu in the North,” he says. Today the Clones Supervalu offers €1.40 for £1.
Helen Smyth and her daughter Joanne were in the supermarket yesterday. Helen lives in Donagh, Co Tyrone, but works in the south and is paid in euro.
“I am shopping here because it will probably work out cheaper,” she says. “It is just a general shop for the house. I have always done most of my shopping in the North up to now because when you change [the euro] you would still have good value. There would be no point changing it now.”
