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THE euro could fall in value by as much as 10% before the year-end as the eurozone economy lags behind recovery in the US and Britain.
That decline will help boost indigenous Irish exports that have under-performed relative to the multinational sector, said Alan McQuaid, economist of Bloxham Stockbrokers.
Mr McQuaid said the likely fall reflects ongoing weakness in the eurozone which Germany’s Bundesbank said was facing the risk of deflation.
That will also lower the cost of borrowing and make it easier still for Irish owned firms to build up sales in overseas markets, he said.
Earlier Deutsche Bank warned the euro will fall in value – driven by market fears its economy will struggle to recover – leading investors to spurn German bonds in favour of US treasuries.
The euro was likely to fall to its lowest level since April, the bank said.
If the eurozone stays depressed, the euro will suffer, undermined by the prospect of growth in the US and Britain in the third and fourth quarters of 2009.
Mr McQuaid said the threat of deflation could pave the way for another cut in EU interest rates in the months ahead.
As things stand, there certainly will be no move to higher rates by the ECB "before 2010", he said.
It all points to the prospect of the euro sinking to 80p sterling or less by the year end, he said.
The decline against sterling is more important to us given the heavy reliance of indigenous exports on the British market, said Mr McQuaid.
Now that property has slumped, "future economic growth will have to be driven by exports", Mr McQuaid said.
Any easing of the exchange rate "will provide a very welcome boost to the drive for fresh export growth", he said.
An IMF report on Wednesday put Ireland’s loss of competitiveness during the boom at 15% in real terms and the weakness in the euro would help counter that worrying trend, he said.
The case for a weaker euro stands up, he said.
"Europe is going to lag [in] the global recovery thanks to the slow response of the European Central Bank to the global economic crisis".
As the US and Britain move towards recovery in the third quarter, the possibility of a fall in the euro from its current 85.50p level to 80p or less against sterling has increased, he said.
Koji Fukaya, a currency strategist at Deutsche Bank in Tokyo, told Bloomberg the euro was about to weaken because the recovery is stronger in the US than in Europe, thanks to President Obama’s "drastic policies to stimulate the economy".
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