PRESSURE could build for a general rise in mortgage rates if conditions in the interbank market do not ease soon.

The key one month money market rate traded at 5.5 per cent for the second day yesterday. Many analysts expect the banks to consider raising retail rates if this level is sustained.

The one month rate had fallen to a "low of 5 per cent at the last rate cut. This was seen as the level needed for the banks to cut interest rates.

The Central Bank is thought to be keen to keep rates high until it is clear whether the booming housing market would continue through the summer.

All eyes will be on the credit data for June which will be released today. Analysts expect a general rise, with some believing that the monthly figure for the increase in underlying credit could be in excess of 13 per cent, from just 12.3 per cent last month.

Mr Jim Power, of Bank of Ireland group treasury, is forecasting a figure of 13.2 per cent. However, Goodbody stockbrokers believe that credit growth could ease in June, before rising sharply again in July.

Market analysts now believe that the prospects for Irish interest rates over the next couple of months are finely balanced. The Goodbody analysis says that, while domestic demand may warrant higher interest rates, the Central Bank is unwilling to push up rates in the face of extremely subdued inflation and while German rates remain on hold. "For the time being the on hold arguments probably win," Goodbody says.

Meanwhile, on the currency markets the pound remains around 104p against sterling.

A weakening US dollar dragged sterling lower yesterday and, as a result, the pound also lost ground against continental EU currencies. The pound fell to 2.3780 against the deutschmark as the German currency continued to strengthen, despite possible intervention from the Central Bank in buying the Irish currency.

The Bundesbank's unexpected failure cut interest rates last week is continuing to buoy the deutschmark, analysts say, and the dollar could continue to weaken.

While a US interest rate increase would normally boost the dollar, many analysts believe the currency's recent weakness was due to fears of a probable increase in interest rates at the Federal Reserve's next monetary meeting, on August 20th. They say a rate rise would be badly received on American stock and bond markets and hence would depress the currency.

There is also a widely held view that the dollar's downward trend is linked to a widely held feeling that the cycle of reductions in European interest rates has come, or is coming, to an end. This is because higher interest rates traditionally strengthen a currency by making it more attractive to foreigners wanting to invest in domestic securities.

The market is waiting for some US statistics this week, including the purchasing managers' index for July and an initial GDP estimate to be announced today and crucial unemployment and job creation figures on Friday.

The US dollar rallied a little late yesterday, recovering some ground from the deutschmark. The US currency had fallen victim overnight to market nerves, which saw it falling below the psychological 1.20 Swiss franc level, DM1.4660 and 106.60 yen, a trend that continued in the European morning. It had closed on Tuesday at DM1.4780 and 108.05 yen.

The was a major sell off of Australian that followed a cut in Australian's official interest rates.