THE pound has risen strongly on the foreign exchange markets, breaching DM2.62 and reaching its highest level in the exchange rate mechanism (ERM) since late April, writes Cliff Taylor, Finance Editor.

International investors continue to speculate on the possibility of a revaluation of the pound's central rate in the ERM.

Combined with the strength of sterling, this is leading to strong overseas demand for the pound, which gained two pfennigs against the deutschmark to DM2.6206 and 0.5p against sterling to close at 92.27p.

Markets sources in Dublin say that rumours continue to circulate in the markets about a revaluation of the pound in the ERM, which is fuelling demand for the currency. However, it is understood that these rumours are completely unfounded, with no prospect whatsoever that the caretaker Government would contemplate such a move. It would then be a matter for the new Government to consider, although it remains most unlikely that an early revaluation move would be contemplated.

The German currency fell back yesterday as speculation increased that a compromise could be reached to allow France to approve the stability pact, the rules applying to states within monetary union. This benefited sterling and the US dollar.