Dollar Decline Impacts Ireland

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Irish Voice News

Dollar Decline Impacts Ireland

March 12, 2008

By April Drew

ON Thursday, March 6, the euro soared to a record-breaking rate, hitting 1.54 U.S. dollars.

It was the lowest the dollar has fallen against the euro since the latter currency debuted in 1999. This week last year the euro was trading at $1.31 against the dollar.

The plummet has been attributed by economists worldwide as a knee-jerk reaction to Federal Reserve Chairman Ben Bernanke’s hint that the Central Bank may lower interest rates further to strengthen the struggling economy.

According to economists, lower interest rates have a tendency to weaken the dollar and induce investors to invest in something more solid like gold, which is consistent for holding it’s value in times of rising inflation.

With the euro striking a new record high against the dollar last week, are the four million Irish euro users benefiting from the upsurge?

Not necessarily in the long run, say two experts. “The best way to look at Ireland is that it lives on this economic equivalent to the San Andreas Fault between Europe and America,” one of Ireland’s leading economists, David McWilliams, told the Irish Voice.

“When Europe and America are going in the same direction everything is good, but when the dollar starts to fall American businesses in Ireland regard us as a country far too expensive to invest in,” McWilliams added.

McWilliams, who said that Ireland always does better when the dollar is strong, feels it will continue to drop.

“The problem here is it’s a long term trend, it’s been happening for years. The dollar has to weaken. It may level off for a while but the long term trend in the dollar is downwards,” he said.

Michael Brewster, senior vice president and portfolio manager in private investment at Lehman Brothers, a global investment bank, agrees that weak dollar is not good news for Ireland.

Brewster explains that even though now is the perfect time for Irish people to purchase property in the U.S. — “Irish people have hit the jackpot when it comes to buying property in America,” he said — the decline in the dollar has a negative impact on Irish exporters.

“If you produce goods in Ireland and export them to the U.S. (Ireland exports 18% of its goods to the U.S.) it is becoming harder and harder to maintain profit margins with costs going through the roof when you consider the cost of raw materials plus labor priced in euros and all the while you’re getting paid in a declining currency,” he explained.

However, Brewster feels the dollar decline versus the euro will reverse sooner rather than later. “It’s an all too human frailty to suppose that a favorable wind will blow forever,” he said, quoting writer Rick Bode.

Although the decline in the dollar is causing a huge stir between financial analysts and economists, Brewster explains that the weakening dollar is actually helping the U.S.

“The declining dollar means that large US exporters, like Boeing, Caterpillar, G.E., are extremely competitive versus companies producing their goods in Europe,” he said responding to the critics that say the U.S. economy is softening somewhat.

“It also helps close the U.S. trade deficit as America will buy less foreign products because they are too expensive and purchase more domestic based products because they are cheaper,” he added.

Now is the time for Irish people to get on the U.S. property ladder, according to Brewster. “Not only is there a big ‘for sale’ sign on U.S. property, but they are purchasing ‘like’ properties at over 30% off because of the decline in the dollar.”

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