The dollar has reached its lowest point against the euro in 15months and this fall may have a depressing effect on the Republic's$1.5 billion annual exports to the US, writes Conor O'Clery,International Business Editor, on Wall Street
Despite a slight rally yesterday, the conviction is growing in the United States that the days of the almighty dollar are numbered, with far-reaching implications for the flow of money into the US and for trade to and from other countries.
The Republic exports $1.5 billion (€1.6 billion) worth of goods to the US annually and a much-weakened dollar could have a depressing effect on this figure - through perhaps not as much as in the last period of low dollar values in the mid-1990s because of a shift to high-tech exports in recent years.
In a volatile foreign exchange market yesterday, the greenback rose against other major currencies on European markets in the aftermath of another Bank of Japan intervention to weaken the yen, although, overall, the dollar's performance was lacklustre.
Since it began its slide in February, the dollar has reached its lowest point against the euro in 15 months, dropping 9 per cent since March. It is also at a seven-month low against sterling and a six-month low against the yen.
The euro was trading in New York yesterday at 93.72 cents, little changed from 93.76 cents late on Thursday.
Most Irish-made goods sold to the US were now high-tech exports, a lot of it cutting-edge technology that was not so price-sensitive, Mr John Corrigan of Enterprise Ireland said. Consumer products were, on the other hand, very price sensitive. Twenty years ago consumer goods like clothing, furniture and tableware made up the bulk of Irish exports to the US and they "always had a problem when currencies went out of kilter", sometimes ceasing altogether until the dollar weakened again. Consumer goods today account for only 25-26 per cent of the $1.5 billion total annual export figure to the US.
A weaker dollar "is not totally good news for investment into Ireland, though US companies in Ireland are well used to variations", said a spokesperson for IDA Ireland in New York. "It makes it more expensive on paper for US companies exporting back."
On the other hand, from the Irish perspective, a weaker dollar "helps prevent the Irish economy from overheating in that it keeps pressure on Ireland's economy to keep costs down".
The US currency has remained persistently vulnerable this week, in spite of Japan's estimated $10 billion purchase of dollars in recent days to prevent the yen getting so strong as to hurt Tokyo's export drive.
THERE is also a perception in foreign exchange markets that the US is reluctant to intervene to halt the decline, despite the remark of White House economic adviser Mr Lawrence Lindsey on Thursday that "the Administration's view of the dollar has not changed - we continue to support a strong dollar".
The fall in the greenback's value is a double-edged sword for the US, said Mr Denis Kelleher, chief executive of Wall Street Access, a New York investment company. It made American goods cheaper overseas and decreased foreign imports "which are all of a sudden more expensive". On the other hand the US had become less attractive to foreigner investment.
While the dollar remained strong, portfolio investment had flowed in from Europe and Japan on the expectation of higher returns, he said. There was now evidence in the market that European money was flowing out again.
The US has had record foreign investment in bonds and stocks during its years as the world's strongest currency, with many EU companies buying US businesses, but paradoxically America has become less attractive to overseas investors just at a time when the economy is recovering from September 11th and the 2001 slowdown.
ANALYSTS say this is because the quality of the recovery is in doubt. Corporate profits, a major incentive for investors, show no sign of picking up, and first-quarter US growth of 5.8 per cent was mainly due to inventory restocking and federal spending. Also the quality of corporate accounting in the wake of major company scandals at Enron, Andersen and Global Crossing has raised concerns about share prices in all sectors.
Many economists predict that the slide in the greenback will continue because of continuing low US interest rates and that the fall-off in investment in US equities, corporate bonds and Treasuries makes the huge current deficit harder to finance, prompting a further retreat from dollar assets, in turn weakening the US economy and the dollar further.
The current account deficit could soar to $465 billion this year, making it even more difficult for the US to attract enough overseas investor funds to keep the greenback from sliding.
