Pound halts slide due to profit taking

THE slide of the pound on currency markets has been halted as speculators took some profits after the heavy selling a day earlier.

The pound was hit by a wave of international selling on Wednesday after Goldman Sachs recommended selling it to buy the Finnish markka in its weekly report.

A one line recommendation from the US investment bank was enough to send the pound into freefall and its lost five pfennigs against the deutschmark and almost 1.5p against sterling.

It has now stabilised at around those levels. It closed at DM2.5549 in late trading from DM2.5658 and at 92.70p against sterling from 191.89p a day earlier.

Goldman Sachs put out a note stating that the pound would either have to fall to its central rate in the Exchange Rate Mechanism, of DM2.41, or be revalued. In either case, it believes the deutschmark would be revalued.

Goldman Sachs also noted than the problem with a revaluation of the pound, which has been receiving increasing attention, would negate the "stability" requirement of the Maastricht Treaty. It would also result in renewed speculation about strength in other currencies, the bank noted. It is expected to release a more detailed paper on the issue over the coming weeks. That could prompt another selling wave, London analysts said.

However, Mr Jim Power, chief economist at Bank of Ireland, noted that the pound was again saved by sterling movements. Sterling fell over three pfennigs against the deutschmark after the Confederation of British Industry said the strength of sterling had dampened export growth.

Nonetheless, selling pressure on the pound is likely to reemerge. As NCB Stockbrokers point out, the dilemma is clear either the pound will have to revalue or it will ultimately have to fall to 2.41 deutschmarks.

Most analysts believe a revaluation is unlikely.