Business

Exporters will feel sick in the face of euro-dollar parity

Many Irish firms will be confronted by further difficulties unless they have hedged their currency exposure

Exporters who have euro input costs and sell their products in dollars will be left with a headache.

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Cantillon
Thu Jul 14 2022 - 05:00

“Inflation at 9.1 per cent makes you sick as a consumer and as a central banker,” was one analyst’s take on the relentless climb in US consumer prices on Wednesday, but there was reason for sickness elsewhere too, especially for Irish exporters.

At around lunchtime, the euro slipped to parity against the dollar for the first time in two decades — a move that had been on the cards for a while, but would have been on the radar of very few before the current economic turmoil properly hit earlier this year. It has created very itchy conditions for anybody who makes things with euro input costs and sells those things in dollars.

As all the Brexit brouhaha and the cost of exporting to Britain have held our attention in recent years, US exports from home-grown Irish businesses have been ticking along quietly and very efficiently, the upsets of Covid aside. In fact, a record €306 billion worth of goods and services were exported from the Republic to the US last year.

It must be acknowledged that a lot of this trade was drawn from US multinationals with operations here, with the increase helped by an expanded trade in pharmaceuticals during the pandemic.

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But there are many more familiar exporting companies too. Figures compiled by Drinks Ireland, an Ibec body, show that drinks exports from the State to the US were worth €619 million last year. Unsurprisingly, the US is the biggest export market for Irish spirits, which represented €561 million of the 2021 total. This included whiskey, cream liqueur and Irish-made gins, all of which have euro input costs that are climbing aggressively. Covering these with sales to US buyers paying in dollars at parity will be next to impossible now unless the vendors have been lucky enough to hedge their currency exposure.

And the same headaches will be facing all the dairy exporters, the meat exporters and those in a large number of other sectors as they try to recalibrate their margins in the face of this latest headwind. They will also be seeking guidance on where currencies might head next, with some economists predicting further declines in the euro as the Fed outpaces the ECB on interest rate hikes, thus making the US more appealing for investors seeking a home for their cash. That could make for an even more sickening situation.

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