Late on Friday the dollar touched 14-year lows against the pound and the euro was trading at 20-month highs at around $1.33.

"If the dollar weakening trend continues, that could suddenly become a huge issue for exporters, " said Brendan O'Connor, the newly-appointed head of AIB Global Treasury Services. Traders will be anxiously watching the dollar next week to see if it passes through the psychological threshold of $1.36, the dollar's all-time low against the euro reached in December 2004.

Long-term factors of the US trade and fiscal deficits had been expected to move the dollar lower for some time, but the trend was reinforced this week by relatively strong economic data from Germany and relatively weak news out of the US.

"The twin deficits continue to be the elephant in the corner, " said Eamonn O'Connor, head of foreign exchange dealing at Ulster Bank. "The market may be finally coming to the realisation that America needs a weaker dollar to address its trade balance."

Last week's economic data fuelled speculation that the US Federal Reserve might cut interest rates in the new year, but that the European Central Bank will almost certainly increase rates still more.

O'Connor predicted that the ECB rate could reach 4% in 2007, news that will put a further chill into the Irish property market as mortgage repayments start to strain household budgets.

An eroding dollar will also mean that Irish exporters who are exposed to the currency fluctuations will see their margins under threat.

"We're competitive at $1.10, " said John Whelan, chief executive of the Irish Exporters Association. "At $1.30 and above the margin is non-existent." Irish software and biopharma companies will be hardest hit.

Around 16.7% of Irish exports went to the US, but these were disproportionately weighted towards the technology and pharmaceutical sectors.

On the upside, a switch to euros as a reserve currency by central banks including that of China make it increasingly possible to invoice in euros, offering some protection for Irish companies.

Building materials firm CRH tops a list of large European companies in terms of dollar exposure, with 49% of its sales taking place in the US. AIB, which traded lower last week, has the largest dollar exposure among Irish banks.