Pound again under selling pressure

The pound has slipped lower again on the currency markets, dropping to 84p sterling and hitting 11-month lows against the deutschmark, as investors continued to sell the currency. Dealers estimated that up to £100 million of the Irish currency was sold yesterday, forcing the pound even lower against sterling, the deutschmark and the dollar on expectations that it will not be revalued in the run-up to European Monetary Union.

As sterling continued to power ahead, the pound dropped by a penny in late trading to close at 84p, with economists suggesting it could still move sharply lower, possibly reaching levels of around 81p. The pound also lost ground against the dollar, drifting to $1.38, down a cent.

Selling continued to force the pound down against the deutschmark, dropping a further two pfennigs to DM2.5223, as speculators sought to push the currency closer to its central rate of DM2.41, the rate at which it is expected to join the single currency.

With the prospect of a revaluation of the central rate at which the pound will join EMU now fading, analysts expect selling will continue and could force it even lower on the foreign exchange markets.

Some suggested that the Central Bank's latest comments, stating that it will only allow Irish interest rates to fall gradually this year, may provide some support for the currency, but most analysts expect the decline to continue.

"A significant fall in sterling could offset the pound's losses in the longer term, but it could fall as low as 811/2p in the weeks ahead. And it still looks like it could be forced down to DM2.41 levels, again fairly quickly," according to Dr Dan McLaughlin, of Riada Stockbrokers. The speed of this fall would largely dictate the pace at which Irish interest rates decline, he added.

On the international markets the dollar took a breather while retaining the bulk of its gains as the market waited for the US response to the yen's latest depreciation. Forex dealers said fears of intervention by the Bank of Japan to shore up the yen had pushed the dollar slightly lower in the morning but the decline was limited.

Most of the European currencies were stable against the deutschmark, which weakened slightly against the Swiss franc - also a favourite safe haven in times of trouble.