THE pound has nosedived again after overseas speculators began targeting the currency for the second time in three weeks.
The pound fell five pfennigs against the deutschmark to DM2.55 and dropped to below 92p against sterling in a bout of severe selling pressure yesterday afternoon.
The selling was sparked by reports that a major investment bank was about to release a negative report on the currency. But Goldman Sachs, which had been mentioned as the author of the negative report, is understood to have told the markets it had no forthcoming report on the pound.
The fresh selling wave has also put some upward pressure on interest rates for the second time in a month. The last time the speculators targeted the pound, the Central Bank put up interest rates in an attempt to make it too expensive for them to go on borrowing simply in order to sell again.
While there is no imminent danger of another interest rate rise, Mr Jim Power, chief economist at the Bank of Ireland warned that if the pound was driven down further, pressure on interest rates would increase again.
The Central Bank's movements will be closely watched this morning. Last time it left the rates very high, clearly indicating it would push them up. Whether or not it does the same today will be taken by the money markets as a clear sign of its intentions.
The selling is motivated by the market belief that the pound will enter European monetary union at its central rate in the Exchange Rate Mechanism, that is, DM2.41. If this were true then selling the pound is simply a one way bet for the international speculators.
Mr Power added that this pressure has been expected at any time over the past few weeks. The pressure had come off to some extent because of the new British government. It is seen as more EU friendly than the Tories and more amenable to a single currency. A slightly weaker dollar had also worked in Ireland's favour, he said.
But that was really postponing the inevitable. The pound's battering is seen as an example of what many countries can expect in the run up to the single currency.