THE pound has fallen to its lowest level in three years against sterling. The pound closed at just on 96p against the British currency but gained slightly against the deutschmark to DM2.6452 from DM2.6404 on Thursday, the last day of trading before the Easter holiday when it closed at 96.52p against sterling.
In consequence, the pound closed yesterday 10.53 per cent above the Italian lira, the weakest currency in the ERM grid. In recent weeks it has traded as much as 12 per cent above the weakest currency.
The authorities were concerned that a rise much above 12 per cent could put Ireland's ability to join the single currency in jeopardy. Under the new rules it is only allowed to trade 15 per cent above the weakest currency. However, they said the only sign of Central Bank activity was a "smoothing operation" and it made no attempt to influence the direction of the moves.
The main reason for the pound's movement is that sterling remains very strong. Investors are expecting further rate rises there after the election, a mood which is underpinning the currency, according to Mr Jeremy Hawkins, economist at Bank of America in London.
In addition, sterling was being perceived as a kind of "safe haven" in a very uncertain financial world, Mr Jim Power, chief economist at Bank of Ireland said.
Political concerns are out of the way and the continuing "sleaze" headlines are having little effect on investors who now confidently anticipate a Labour victory.
Britain was better placed than most European countries to follow the Federal Reserve and increase interest rates, Mr Hawkins added.
Sterling virtually ignored the March UK Purchasing Managers Index which showed a 10th consecutive monthly rise in output and new orders. The overall PMI, however, edged slightly lower to a seasonally-adjusted 52.9, from 53.4 in February.
According to Mr Power, sterling is unlikely to be able to sustain levels above DM2.75 and will see some profit-taking over the next few days. "The pound is just a spectator caught in between the dollar and sterling," he said.
