The pound was the subject of further heavy selling by international funds yesterday. However, most of this selling was offset by substantial buying from domestic corporates.

According to market sources, around £100 million was sold yesterday mostly against the deutschmark. However, Irish corporates saw the pound as a buy at around 91p against sterling.

The pound closed at 90.58p against sterling in late trading from 91.06p on Monday and at DM2.6246 from DM2.6180.

Mr Jim Power, chief economist at Bank of Ireland, said the pound nevertheless fell back as it failed to keep pace with sterling's gains against the D-mark.

He warned that if sterling strengthened further, the pound could fall below 90p once again. Sterling has become popular again for two main reasons. The market is now revising its expectations of future rate moves and now believes that further rate rises are on the cards despite the Bank of England's preference for a weaker currency.

Economic figures released yesterday only underlined this expectation. Sterling was helped by a rise in British GDP and current account positions in the second quarter. "These figures indicate how strong the economy particularly on the consumer side is," Mr Power said.

In addition, on the other side expectations for German rate rises which would help the D-mark are being scaled back. A dip in inflation in two German states make it less likely that the Bundesbank will raise rates soon.

Consumer prices fell by 0.3 per cent in September from August in both Bavaria and North Rhine-Westphalia. A provisional inflation index will be published once consumer price data have been received from two other states, Baden-Wurttemberg and Hesse.