This time last year the headlines warned that jobs could be lost, as the pound reached a new high of almost 104p sterling. Now not a word is heard from those exporting to Britain, who are happily coining it in as the pound falls closer to 88p sterling. The complaints are coming instead from those selling on continental EU markets who are being affected by the strength of the Irish currency against the deutschmark and the French franc.

The currency problems facing the Government and the Central Bank are twofold. First, the pound is falling fast against sterling, threatening to increase inflation by pushing up import prices of goods from Britain. Second, the Irish currency has been dragged up in value against the continental EU currencies by the strength of sterling. Its resulting high value will , if sustained, create problems for the transition to membership of monetary union. The strength of sterling is thus the key issue for Irish policymakers and the danger is rising that the pound could fall sharply against the British currency. At the moment sterling is roaring ahead, buoyed by the expectation of higher UK interest rates and the confidence that sterling is not a likely member of the first group moving to monetary union.

Will sterling go yet higher? Some forecasters believe it will, although currency prediction is a notoriously difficult art. The affect of the currency swings on the real economy are complex as the pound is rising against the European currencies and falling against sterling. It is a good year to go to France on holidays, but a bad time to go to Britain. Those companies paying import bills in sterling are facing higher prices, while those bringing in goods from anywhere else in Europe will have to pay less in Irish pound terms. And - surprise, surprise, - economists are divided on the overall impact on the economy. Some believe that the weakness of the currency against sterling will create overall inflationary pressures; others argue that this will not happen as the strength of the pound against other currencies will largely offset the sterling decline. In any case, the experience of recent years suggests that strong competition among retailers is helping to keep prices down.

So where do things go from here? The experience of the last few days suggests that the problems for the authorities are becoming more severe. Up to the last few days, strong speculation that the pound's central rate in the ERM would be re-valued upwards were supporting the currency. This speculation reached a peak last weekend, due to entirely unfounded speculation of an imminent revaluation. Now that this rumour has run out of steam, some selling of the pound has started to surface. This has pushed the pound down towards 88p sterling. The danger now is that further sterling strength could see the pound decline sharply against the British currency. A sharp fall against sterling would inevitably lead to upward pressure on interest rates, although a rise in rates would be likely to do little to support the currency. So there is no easy answer. If sterling starts to wane, then the problem will start to solve itself. But if not, the Government and the Central Bank could be caught in a nasty bind.