Exporters nervous as £ edges above 104p sterling

THE pound went over 104p sterling for a brief period yesterday in a foretaste of what may be ahead as European interest rates continue to fall. Sterling's continued weakness combined with a strong dollar to push the pound up to 104.07p at one stage.

However, the Irish currency had fallen back to below 103.85p by the end of the day and most economists expect it to trade around this range for the time being, making occasional excursions over 104p.

Mr Colum McDonnell, the chief executive of the Irish Exporters' Association, pointed out, however, that many exporters have been calculating their British prices for 1996 on the basis of the pound averaging 103p sterling.

The association called for the introduction of a special fund to help exporters badly affected by the currency's strength. Similar proposals have been put by IREX, the exporters' body associated with the Irish Small and Medium Enterprises association and also by the Small Firms Association. Toe date there has been no response from the Government.

The British currency's weakness was blamed on rumours, later denied, that a date had been set for an early British general election. It was fuelled by speculation that this week's rate cut was politically motivated as part of the run up to an election.

"The markets are starting to wonder what lay behind the interest rate cut, since the inflation level is not so good, as expected," explained James Capel analyst Mr Adam Cole.

On Thursday, the British Treasury reduced the Bank of England's base rate from 6.5 per cent to 6.25 per cent, although the annual inflation rate rose slightly to 3.2 per cent in December, against 3.1 per cent in November. Sterling fell sharply in early afternoon.

The dollar rose firmly against the deutschmark, reaching levels it had not seen since mid September and remaining well above the DM1.47 level all day. It was also firm against other currencies and closed at under $1.57 to the pound.

"The dollar rate is coming into levels that make it very attractive for some Irish corporates to buy pounds for dollars," according to Mr John Beggs, chief economist with AIB Capital Markets. "That is having a knock on effect on the pound/sterling rate," he explained.

The dollar's firmness is due to positive US economic data released yesterday and a "persistent perception of a weakened German economy", according to Mr Cole. The US unemployment rate was 5.6 per cent in December unchanged from November, while GDP grew by a 3.2 per cent annualised rate in the third quarter against the previous estimate of 3 per cent.

Analysts said the dollar was also supported by statements from US Treasury Secretary Mr Robert Rub in that the administration favours a strong dollar, and by investors optimism over the outcome of the Group of Seven meeting to be held in Paris today.