Exporters should look for renewed strength in sterling before seeking to fix their exposure to the British currency, analysts said yesterday.

Irish exporters came under fresh pressure over the weekend as sterling reflected the fortunes of the British government and suffered a significant sell-off in Asia.

In early trade yesterday, sterling had slipped to a six-week low of 71.38p against the euro, and a three-month low of $1.578 against the dollar.

Markets were concerned at the prospect of political instability in the wake of the death of arms expert Dr David Kelly, who had been at the centre of a row over the basis for the war in Iraq.

Mr Niall Dunne, financial markets economist with Ulster Bank, said sterling had come under pressure as soon as news of Dr Kelly's death had "hit screens" on Friday. He described the sell-off that ensued as "a knee-jerk reaction to an unpredictable event", but predicted sterling's weakness would dissipate "as the crisis slips from traders' memories".

The beginning of such a rebound was apparent in later trade yesterday, as sterling rose back to levels around 70.7p against the euro. Mr Dunne warned, however, that exporters should prepare for rates above 70p over the longer term as the Bank of England sought to enforce a "weak sterling" policy. Such a stance would create serious problems for Irish exporting firms, since the UK is their largest market.

Mr Dunne expects the Bank of England to cut interest rates towards the end of the year, thus sending sterling lower. Opportunities to fix in such a climate would, said Mr Dunne, come "on the dip". Any move back to 68p would offer such an opening to UK-dependent exporters, he believed. "The range is only set to move higher," he said, forecasting a sterling/euro exchange rate of 71.5p for the end of the year.

ABN Amro foreign exchange analyst Mr Aziz McMahon also urged would-be fixers to await "more competitive levels" yesterday, describing the weekend sell-off as "overdone". He expects sterling to strengthen back to levels around 68.5p over the next few weeks and to trade in a range around that price for the rest of the year.

Mr McMahon does not share the market's view that a further 50-point reduction in British interest rates is likely before the end of 2003.