DUBLIN: The Euro has gained in value against sterling by about 6pc since the beginning of December and is trading close to a three-month high.
The pound has fallen every day this week against the dollar, and touched its lowest level since 2010 on Thursday.
A gain in the value of the euro against the UK currency cuts margins for Irish exporters selling into the UK market.
But analysts believe the brief rally is short-lived.
John Moclair, head of retail treasury sales at Bank of Ireland, said it’s unlikely to strengthen much further.
“It’s difficult to see the currency pair moving much higher from here, given stark contrast in the performance between the UK and Eurozone economies, as such we expect that the momentum in this move will begin to fade, and we could see EUR/GBP weaken from here,” he said.
The British currency has had a rocky start to the year, falling to its lowest in more than five years against the dollar on Thursday, with the slump in commodity prices and turmoil in China making it harder for investors to foresee an interest rate increase by the Bank of England this year.
The planned referendum on Britain’s European Union membership is also reducing the currency’s attraction.
“2016 is in all probability going to be the year for the referendum on EU membership of the UK,” Mr Moclair added.
“Recent polls are showing a close call, and are starting to affect markets. We continue to feel though that it is a low probability but high impact event.”
Traders and analysts are also delaying their calls for the Bank of England to raise interest rates.
British economic growth slid to its joint-weakest in nearly three years in the three months to September, and financial data company Markit said its December survey of purchasing managers pointed to only a marginally faster expansion in late 2015.
Markets are currently pricing in no rate increases in the UK until after February 2017, while Goldman Sachs and ING Bank this week pushed back their rate-increase forecasts to the fourth quarter of this year from the second.
The pound was at 74.24 pence per euro on Friday, on course for a seventh weekly decline. Danske Bank cut its estimates for the pound on Friday, moving its three-month forecast for the currency pair to 73 pence per euro, from 70 pence previously.
