UNCERTAINTY about French currency policy has hit the franc and contributed to a further surge in the value of sterling, which has pulled the pound to new highs against the deutschmark. The pound closed just, above parity with sterling yesterday, but rose by almost a pfennig against the deutschmark to DM2.5846, its strongest level in more than three years.
Sterling is benefiting from speculation about higher interest rates and, also the uncertainty over the franc. The German Finance Minister, Mr Theo Waigel, yesterday hit back at a pointed French attack on the monetary policies of the German central bank, laying down the law that Germany would not sanction devaluation strategies for growth.
But the French franc was still hit by substantial losses in reaction to remarks by a Bank of France official and by former French president, Mr Valery Giscard d'Estaing, as reassuring remarks by the bank governor had limited impact.
Mr Waigel's comments came the day after a Bank of France council member attacked the Bundesbank for lack of understanding on monetary and exchange rate policy, saying this was damaging Europe's single currency plans.
Expressing a minority view within the Bank of France, council member Mr Jean-Pierre Gerard said that the only way to counter this could lie in devaluing the French franc.
The franc was trading at Ffr3.3988 to the deutschmark against Ffr3.3918 on Thursday evening. In late afternoon, before statements by Bank of France governor, Mr Jean-Claude Trichet, the franc slipped briefly to more than Ffr3 40 to the D-mark. In Dublin the pound was worth Ffr8.7823, up from Ffr8.7428 the previous day and from below Ffr8.68 earlier this week.
"Growth and employment cannot be reached through a targeted exchange rate policy," Mr Waigel told the German parliament. "Exchange rates are ultimately decided by markets on the basis of economic fundamentals."
Mr Trichet and French Finance Minister Mr Jean Arthuis did their best to limit the damage caused by the pro-devaluation comments.
Following Mr Arthuis's lead Mr Trichet yesterday issued a statement saying the French cent bank was unshakeably committed to a stable franc.
