Sterling helps boost pound against mark

THE pound has been pulled up against the deutschmark by a further surge in the value of sterling.

The Irish currency gained 1.7 pfennigs against the deutschmark to DM2.6382, benefiting from continued speculation from international investors of a revaluation of the pound in the ERM in the months ahead.

Official sources recently played down the likelihood of such a move. However, with a number of stockbrokers' reports openly discussing the issue including recent notes from NLH, Davy and UBS - the speculation is ensuring that the pound rises in tandem with sterling on the foreign exchange markets.

Sterling soared yesterday in line with the consumerism spirit now thriving in Britain. Investors are in no mood to allow the first Labour budget in nearly two decades to ruin the party.

Expectations that Chancellor of the Exchequer, Mr Gordon Brown, will move to curb domestic demand in tomorrow's budget have failed to puncture the bullishness that propelled sterling above DM2.90 marks for the first time in five years yesterday.

Traders are betting that any fiscal tightening Mr Brown proposes will be too little, too late - and that monetary policy will be left to carry the can in the fight against inflation.

Sterling/mark surged to 2.9070 Monday, its best showing since July 1992 and it remained above DM2.90 in late trading.

The pound remained stable against the rising sterling, closing at 90.82p sterling. The Irish currency continues to benefit from strong international demand.

In a comment published over the weekend, Davy -stockbrokers said the prospect of a revaluation of the pound was higher than it was earlier in the year, because of the strength of sterling and the fact that the election is out of the way.

The argument for a revaluation of the pound's central rate is that it would limit speculation against the pound and also bear down on inflation. However, sources believe that it would be a risky strategy - as sterling could fall again and would also hit exporters.

For the moment, sterling remains strong and further rises could pose problems for the Government.

Evidence of the strength of the British domestic demand has been piling up in recent weeks, with the consumer and the housing market proving resilient to the two quarter-percentage increases in British interest rates since Labour took office on May 1st.

Retail sales leapt 5.3 per cent in May from a year earlier, the biggest annual rise since the end of 1988.

In the meantime, house prices rose an annual 11 per cent in June, according to the Nationwide, the largest gain since the third quarter of 1989.

Sterling is also expected to be bolstered against the mark as long as expectations persist that the planned single European currency will not be as strong or as stable as the mark.

Such speculation was fanned after Germany's Info research institute said Monday it expects European economic and monetary union to start on time, though most countries will not fulfil all the criteria.

Britain's opt-out from the project has led traders to rank sterling alongside the dollar as a safe haven from EMU.