The US dollar dropped to its lowest level in 10 months yesterday as it too suffered the knock-on effects of the Clinton administration's difficulties and the decline in the markets.
Sterling also fell heavily as it tumbled with the dollar and was undermined by domestic uncertainty as the Bank of England said inflation may come in lower than expected. A very gloomy distributive trades survey released by the Confederation of British Industry added to its weakness.
The pound rose against both currencies, closing at 88.05p against sterling from 87.29p a day earlier and at $1.4810 from $1.4508. But according to Mr Jim Power, chief economist at Bank of Ireland, both will fall further and buyers should sit tight for the moment.
According to Dr Dan McLaughlin, chief economist at ABN Amro, the dollar may now be oversold. "The catalyst for a bounce might be news that the Congress is not going to impeach Clinton," he said. "But I do not think even that will see us tracking back to 85p."
The gains in the pound will relieve the Central Bank somewhat. Inflation here is usually thought to be primarily dominated by exchange rate movements and the tradeweighted index is now rising - offsetting inflationary pressures.
However, figures released yesterday which showed a bigger than expected rise in inflation to 3.2 per cent mean the Bank will be reluctant to begin to cut interest rates this month, Dr McLaughlin said.
The Central Bank autumn bulletin is due to be released next Wednesday and that may give a clearer indication of the Bank's intentions, Dr McLaughlin noted.
Interest rates across the world are continuing to fall as investors flee the stock markets. The US 10-year rate is below 5 per cent for the first time since the summer of 1967.
Irish long-term rates also fell. Two year rates are trading at 3.75 per cent while five-year bonds are trading at 3.9 per cent, pointing to fixed rate mortgages below 5.4 per cent.
Despite the ongoing global crises, trade numbers for June here were remarkably strong. The balance of exports over imports was £1.75 billion, easily the highest on record. Exports were up 31 per cent and imports up 24 per cent. In June, exports reached £4.3 billion, almost half a billion more than any previous record.
