The pound has fallen below 89p against sterling, reaching another milestone in its descent against the British currency. The pound's fall will be welcomed by exporters and many farmers but will add to inflationary concerns at the Central Bank and the Department of

Finance.

The pound fell against sterling in the wake of the new French government's austerity measures. It also results from profit-taking after investors who had bought the currency on the hope of making a quick profit in a weekend revaluation of its ERM rate sold out. The pound closed at 88.98p against sterling from 89.38p on Friday and at

DM2.6835 from DM2.6822.

Dr Dan McLaughlin, chief economist at Riada Stockbrokers, said dealers were taking profits after the EU monetary committee meeting this weekend.

Speculation that a revaluation of the pound could be on the agenda of the meeting produced heavy buying with the pound appreciating significantly against the deutschmark over the past month. This left room for those who had bought the currency to sell and take their profits.

The Central Bank can do little to influence movements in the currency. While the pound continues strong against the deutschmark it cannot keep up with sterling's gains against the deutschmark.

Many dealers are buying sterling and the dollar instead of the deutschmark in the belief that the new euro currency will end up weaker than the present value of the German currency. The French measures to bring the deficit down to qualify for the single currency simply added to the belief that the new currency may be weaker than was originally believed, as the entry criteria will be less stringent.

Dr McLaughlin said this is likely to continue over the coming months when the dollar is likely to continue rising. He says the dollar may move as high as DM1.85 or even DM1.90, which would underline sterling's strength, possibly bring it as high as DM3.05.

Nevertheless, he believes the pound is unlikely to fall much below current levels. "There is significant corporate interest in buying the pound at 90p or below where most people believe it is undervalued," he said. "But the danger would be if sterling were to start running away again. If sterling were to rise to 3.1 or even

3.15 marks the pound could suffer," he added.

The other element which could undermine the pound is if the revaluation story which has supported it recently moves into the background again.

The problem with the story, according to Dr McLaughlin, is that the longer nothing actually happened the less credible the story becomes. In addition, because the ERM is in fact "asymmetrical", the onus is more on the French than the Irish to do something if the limits were close to being breached.

"It's just not credible the French would adjust their policies because of movements in the pound." Dr McLaughlin, a longterm sceptic of the EMU plan, said that, as a result, he believed that the ERM is

"effectively dead".