The pound has fallen back slightly against the deutschmark as some speculators began discounting the likelihood of a revaluation of the pound's central ERM rate this weekend.
In recent days, the pound has been bid up by overseas speculators gambling that the Irish authorities would be forced to re-value the currency over the course of the meeting of finance ministers this weekend.
At the same time, the pound gained slightly against sterling which lost almost another three pfennigs against the D-mark.
The pound closed at 94.25p against sterling from 93.92p and at DM2.6875 from DM2.7036. Traders said the pound had reached its highs on Tuesday and the level of just over DM2.7 would have implied a revaluation of almost 10 per cent, which few believe is on the cards.
As a result, many analysts now believe that selling pounds to buy D-marks makes sense at this time.
One analyst said one London investment house had been caught short of the currency and had spent up to £300 million in unwinding this position.
However, large sell orders have also been coming in. Mr Oliver Mangan, bond economist at AIB, said he expected further sell orders after the weekend when it becomes clear that a large revaluation is not immediately on the cards.
