Pound falls on sterling but rises in ERM band

 

THE pound has risen further in the EU Exchange Rate Mechanism, which may prompt some concern at the Central Bank.

The Irish currency drifted lower against sterling yesterday, but continued to rise in the ERM band and is now well above all the other currencies in the band.

Sterling remains on a firm trend and the pound closed yesterday at 98.46p sterling, compared to 98.53p at the previous close.

Expectations of rising interest rates are pushing the British currency higher, with the focus now on a meeting between the British Chancellor of the Exchequer, Mr Ken Clarke, and the governor of the Bank of England, Mr Eddie George, next week.

The Central Bank is likely to be concerned about the inflationary implications of the fall in the value of the pound against sterling.

But it is also likely to be unhappy with the rise in the ERM band, with the pound now trading almost 9.2 per cent above the French franc and 8.4 per cent above the deutschmark.

The pound rose further against the deutschmark yesterday, closing at DM2.6122, compared to DM2.6101 at the previous close. This is now just a fraction below the level before the January 1993 devaluation.

The Maastricht Treaty says that to qualify for monetary union a currency must trade in a stable fashion within the ERM for the previous two years.

There is no definition in the Treaty of what this means and the pound is still well within the margins which allow it to vary by 15 per cent against any of the other currencies.

However, to highlight the strength of the pound's case for membership of monetary union, the Central Bank would no doubt prefer the Irish currency to trade more closely in the band with the deutschmark and the French franc, which are expected to form the core of the new single currency.