THE pound has risen to trade at 103p sterling for the first time in over a month, with analysts predicting the Irish currency could remain at these levels for some time.
On the back of a sliding dollar and the sharp drop in international equity markets, the Irish currency managed to gain ground against a weaker sterling yesterday.
In line with other European currencies, however, the pound drifted lower against the deutschmark to close down two pfennigs at DM2.39.
Irish interest rates remained comfortable though, with key one month money market rates continuing to trade at just below 5.5 per cent, giving no indications of any imminent increase in retail rates.
Reacting to the pound's further strengthening against sterling yesterday, the Irish Co-operative Organisation Society (ICOS) warned the exchange rate was now "too high". In a statement, ICOS director, Mr Martin Varley, said the current exchange rate was reducing the value of exports for Irish food companies and could also threatened a revaluation of the green pound.
However, analysts have indicated that exporters will be forced to cope with the current rate of exchange against sterling, at least in the short term. Bank of Ireland Group Treasury economist, Mr Jim Power, says the Irish currency will stay at around 103p sterling for some time.
On international markets, the dollar came under further pressure in the wake of a sharp fall on Wall Street on Monday.
The US currency sank more than two pfennigs against the Dmark, its biggest one day fall this year. Concerns about market weakness in New York prompted investors to sell the dollar, switching into the deutschmark on the expectation that the next move in German interest rates will be upwards.
In an effort to soothe the markets, the Bundesbank president, Dr Hans Tietmeyer, said the German central bank was eager to keep interest rates steady for as long as possible, if monetary conditions allowed.
Analysts said the statement, carefully timed to come out as the dollar sank below the key DMI.50 level and the German share and bond markets were hammered lower, did not signal a shift of policy but merely underscored standing statements.
"These comments may help the market overcome frustration as the Bundesbank council re-emphasises its willingness to do something if conditions are right," according to Mr Thomas Mayer, senior economist at Goldman Sachs in Frankfurt.
Its key repo has been held fixed at 3. 30 per cent since February, "and the Bundesbank, in an unusual move, left this rate steady when it last slashed its discount and Lombard rates by half a percentage point in April.
The first sign of an end in the downward trend in European interest rates came last week, when the Dutch central bank moved to increase its key lending rate. The French President, Mr Jacques Chirac, has also signalled a rise in French interest rates.
The major focus for currency markets this week is Thursday's Congressional testimony by US Federal Reserve chief, Mr Alan Greenspan, for hints on a possible tightening in monetary policy.
