The British pound sank by more than a penny against the euro and two cents against the dollar today as markets revised down likely levels at which sterling would join the euro.
The downward revisions came following two British government studies.
The pound's equilibrium rate was equivalent to 75-85p per euro, according to the Treasury's background studies for the government's assessment of the economic case for euro entry, much lower than most analysts' forecasts of a likely euro entry rate.
The euro soared by more than a penny within 20 minutes of the announcement to 71.41 pence before easing to 71 pence by 11 a.m. Sterling plummeted by more than two cents against the dollar, to $1.6428 , before paring losses to $1.65.
The Treasury rushed to soothe the situation, with a Treasury spokesman saying the British government's objective was for a stable and competitive pound, and that the estimate, by Professor Simon Wren-Lewis, was one of 18 studies published today.
British Finance Minister Gordon Brown gives his assessment of Britain's readiness to join the euro at 3:30 p.m., and a "not yet" verdict is widely expected.
The Treasury's 18 studies, running to over 1,700 pages, said Britain's housing market made it more sensitive to interest rate changes than most of the 12 countries in the euro zone and that progress on labour market flexibility in the European Union lagged Britain and had been slow to pick up.
The Treasury studies also said recent movements in the exchange rate and current accounts threw some doubt on the estimates at the lower end of the range, and that a new model gave a medium-term equilibrium exchange rate for sterling of 1.37, or around 73 pence per euro.