The euro has dropped to its lowest level for four months on the foreign exchange markets, easing the pressure on Irish exporters.
The euro fell close to $1.08 yesterday, before recovering slightly in later trading, as investors reacted to conflicting economic signals from the US and Europe.
The latest dollar rally follows a string of indicators pointing to a revival in the US economy.
In constrast, the euro zone economies remain depressed, with data showing Germany, Italy and the Netherlands all in recession and output also shrinking in the second quarter in France.
The euro had risen consistently against the US dollar since early last year, breaching $1.18 at its peak.
While this has helped to bring down inflation here by cutting import prices, it has put severe pressure on the export margins of companies selling outside the euro zone, mainly to the UK and the US.
The latest reversal in the euro's fortunes - it has lost around 10 cents against the dollar since June - will ease this pressure.
Considerable uncertainty remains about the likely currency trend in the months ahead, with analysts divided on whether the dollar rally can be sustained. Up to recently, many forecasters had predicted that the dollar weakness would continue and that this was necessary to help reduce the massive US balance of payments deficit. A weaker dollar would reduce the deficit by boosting exports and making imports more expensive. However, the contrasting economic signals on both sides of the Atlantic in recent weeks have sent funds flowing out of the euro and into the dollar, with the US equity market benefiting from substantial inflows.
In particular, investors have been withdrawing money from the safe haven of euro bond markets and moving into equities as signs of a US recovery build. Indicators this week have suggestged that confidence is growing in US manufacturing and that conditions in the jobs market may also be improving.
Meanwhile, funds have also flowed into the Japanese equity market, which has made substantial gains in recent gains, helped by some positive economic indicators. Japan's benchmark Nikkei-225 stock index rose 4.23 per cent in the past week and is up 35 per cent from its 20-plus year low in April of 7,607.88.
Some leading indicators in the euro zone have also indicated that the worst may be over, but data showing activity in the early months of the year has been poor and recovery in the EU economy is expected to be slow.
After recording its biggestweekly fall in two years, the euro sank to a four-month low of $1.0836 yesterday from about $1.1200 at the beginning of the week. The euro had fallen particularly sharply on Thursday, following a string of optimistic US data published that day.
In New York last night it was trading round $1.0880. Against sterling, the euro fell to a six-week low at £0.6891 from £0.7000, a decline which should help the many indigenous companies which sell into the British market.
