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Corporate Treasury Report: Foreign Exchange 2008

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Volatility likely to remain high
When the dust settles in the market, the banking landscape will be reshaped leaving a financial industry that is likely to be safer, but a lot less lucrative for shareholders, says Criona Fitzgerald. Fitzgerald writes, 'The dollar has reverted to its traditional safe-haven status as investors continue to reduce exposure to assets facing an increasingly challenging environment. The dollar will benefit from repatriation flows so long as markets continue to operate on a least worst option basis.'
Diverging fortunes for the euro
David Powell assesses the impact of fluctuation in the euro, US dollars and sterling – and its effect on the Irish business community. Powell writes, 'a continuation of monetary easing in the UK would cause the yield spread between the euro and the pound to move in favour of the single currency, leaving EUR/GBP to post new record highs in the year ahead. Indeed, we expect this European cross to hit 0.8400 by the end of 2Q 2009 before retreating to end the year at 0.8200.'
Uncertain market for exporters and investors
Taking an active approach to the management of all foreign exchange market exposures is critical in limiting adverse impact on Irish exporters and investors, according to Simon Barry. Barry writes, 'the magnitude and speed of the moves seen on the fx markets over the past year is truly staggering and is a reminder of just how abrupt moves in financial markets can be when there is a pronounced shift in sentiment.'
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