THE pound has fallen back below 95p sterling as the British currency and the US dollar rose strongly on the markets yesterday. While G7 ministers had expressed their concern at the weekend at the strength of the US currency, their lack of agreement on any concrete measures lead to renewed strength in the US currency yesterday, which in turn lent some support to sterling.
In Dublin, the pound slipped 0.3p to close at 94.99p sterling, with market sources reporting that the Central Bank again intervened and bought the Irish currency to stop it losing more ground against sterling. The pound remains firmly at the top of the ERM band, closing yesterday just fractionally lower against the deutschmark at DM2.6649. It dropped half a cent against the dollar to $1.5419.
The US dollar rallied in early trade to a 37 month high against the mark and near its 55 month peak against the yen before easing slightly at midday as the bullish mood triggered by Sunday's G7 meeting cooled.
But traders said a pause for breath was only natural after the dollar's sprint forward. Analysts said the remarks from the G7 meeting lacked aggressiveness and had made dollar bulls comfortable.
The dollar was at 1.7316 marks by late European trade, off the overnight high of 1.7395, and against 1.7235 in late European trade on Friday.
The market view in the light of the G7 statement appeared to be that the authorities would tolerate a strong dollar as long as it did not move rapidly, analysts said, citing a remark made by Bank of England Governor Mr Eddie George after the meeting.
Mr George said G7 officials felt the foreign exchange environment was "in pretty good shape" and that no need had been expressed at the meeting for an action plan to deal with future currency moves.
But euphoria was clouded because the G7 had sounded a warning note on trade imbalances.
The meeting emphasised the importance of avoiding currency moves that could lead to a reemergence of large trade imbalances. They named no names, but markets saw this as a reference to Japan's swelling, politically sensitive trade surplus with the U.S.
