Strong pound causes worries for jobs in export sector

THE pound ended the week at just under 104p sterling amid calls from the Small Firms Association for the Government to take steps…

THE pound ended the week at just under 104p sterling amid calls from the Small Firms Association for the Government to take steps to take protect export jobs being put as risk by the strength of the pound.

However, there were signs yesterday that the current bout of dollar inspired weakness in the British currency may bottoming out.

The dollar rallied on Friday against European currencies while the deutshmark remained on an up trend in the wake of the Bundesbank's surprise decision on Thursday to steer a steady rate course. The dollar was trading at DM1.4837 on the London market against DM1.4798 on Thursday evening.

However, analysts in London warned that it would be unwise to read to much into the yesterday's rally in the dollar. James Capel analyst Mr David Bloom commented that, "despite its rise, the dollar's movements on Friday cannot be taken seriously, since the market is cautious ahead of a series of US statistics to be announced next week".

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They particularly include employment and wage cost figures, and the market will try to use them as tea leaves "to read the US Federal Reserve's next monetary policy decision", the analyst said.

The deutschmark continued to benefit from the Bundeshank's surprise decision on Thursday to maintain its interest rates, though the markets had expected a cut in the repurchase rate from its current level of 3.30 per cent.

In Dublin, the Central Bank is understood to have once again been actively intervening in the currency market to try and ensure that the pound tracks the deutschmark up, rather than weakening with sterling. Last night, the pound closed at DM2.3952, compared to DM2.3947 on Thursday. Against sterling the pound closed at 103.99p sterling, compared to 103.96p on Thursday.

The Small Firm's Association has called for measures to combat the competitive pressure being experience by small exporting companies. "For companies who have developed export markets on the basis of the pound trading at parity with sterling the current exchange rate means profit levels have been eroded," said Mr Pat Delaney, assistant director of the SFA. He added that some commentators were predicting that the pound could appreciate to as much as 106p sterling during the year.

The Government should seriously re examine the possibility of market development fund which operated in 1992, said Mr Delaney. This fund gave grants to small exporters to Britain to help them offset the impact of the appreciation of sterling. The Government should also look at measures to reduce the transport, energy and service costs of vulnerable sectors, he said.

"The SFA has consistently expressed the view that currency policy must be managed in a manner which is geared towards maintaining competitiveness on export markets. The pound trading above 104p sterling will not achieve that objective," Mr Delaney said. "We must take action now and not wait for companies to, close down, because that reality is not far away," he predicted.

John McManus

John McManus

John McManus is a columnist and Duty Editor with The Irish Times