THE pound has fallen back below 101p sterling for the first time in 18 months, bringing further relief to exporters and the farming community. The Irish currency closed yesterday just over 100.8p sterling, after some selling of the pound by investors sent it lower.
Investors have been taking profit on the pound after it reached high levels' against the deutschmark. The pound closed at DM2.4679 yesterday from DM2.4646 a day earlier.
Sterling's upward momentum halted slightly but dealers said they expected it to resume over the coming days. It was also strengthened after the D mark weakened and the dollar strengthened.
The German currency was hit after Russian President Mr Boris Yeltsin fired his national security chief, General Alexander Lebed. The D mark is usually affected by political uncertainty in Russia and yesterday's news led to some buying of dollars and Swiss francs. But analysts said that the Russian turbulence merely accentuated a downward tendency for the deutschmark, already visible.
Market analysts are divided on whether sterling will remain firm or start to fall back in the weeks ahead. Its latest movements are causing difficulties for the Central Bank, as they are pulling the pound up against other EU currencies, while causing it to lose ground against sterling. Sustained weakness against sterling would push up import prices in pound terms and thus boost inflation. Meanwhile, the Bank would like to see a stable rate against the German currency in the run up to EMU.
In its latest comment, AIB Treasury predicts that sterling is likely to stay strong over the coming weeks. However, it believes that the British currency could take on a weaker trend early next year as the British election approaches.
Overall, while a move to parity cannot be ruled out, AIB believes the Irish currency will generally trade in a 101p to 103p sterling range over the coming months, although it believes that taking a longer view the Irish currency would move higher.
Investors in the British currency will be examining a report in today's Financial Times, which says that British public spending next year will be reduced only slightly from levels earmarked a year ago, in a rebuff to right wing Tories pressing for deep cuts to fund a pre election tax giveaway.
The British Chancellor of the Exchequer's discussion today with Treasury ministers and senior officials at his country residence, Dorneywood, will make it plain that 1p is probably the most that will be topped off the basic rate of income tax in next month's Budget.
Mr Kenneth Clarke's concern about high public borrowing levels - and his conviction that only modest spending reductions are possible - means that he remains uncertain whether any net tax cuts can be afforded.
In the US the economic figures and strong earnings reports sent the Dow Jones index to new highs. Analysts said that the figures did not indicate immediate pressures for higher interest rates, although there was some uncertainty about how much higher the Dow Jones index could rise.
The Dow closed last night at 6059.2, up more than 38 points and its 30th record closing high for the year. Analysts were cautious last night, saying it would now have to settle in, having finally broken the 6,000 barrier. The rising Dow helped bank shares in Dublin to reach new record levels, with AIB up 5.5p to 381.5p and Bank of Ireland 6p higher at 516p.
In the US, new home building slumped by 6 per cent during September while the pace of industrial expansion eased.
Two other US government reports showed a sharp rise in unsold goods during August on the shelves of wholesalers, retailers and manufacturers and a rise in new applications for jobless pay last week.
Building permits, a precursor of housing starts, were down 2.9 percent, indicating that starts would remain soft over the next two or three months.
While welcomed in financial markets, the data, however, encouraged fears that the slowing of the economy could go too far and take a bite out of earnings next year, leading to cautious assessments of Wall Street's prospects.
