Heavy selling of sterling on international money markets has given some relief to the Irish pound which closed yesterday at just under 89p sterling. But some economists warned that the pound's improvement from an 88.3p sterling opening level could prove only temporary.

In heavy trading, sterling dropped four pfennigs against the German mark to close at DM3.01. The sell-off, lead by US investment houses, was attributed mainly to profit-taking after last week's strong gains by the British currency.

The Irish pound moved down with sterling but its fall was less sharp. The pound closed just under 2.5 pfennigs weaker against the German mark at DM2.6760. The fall in the value of the pound against the deutschmark has put the Irish currency in a more comfortable position within the Exchange Rate Mechanism of the European Monetary System.

The pound is now 11.6 per cent ahead of the weakest EMS currency, down from last week's level of 13 per cent. It has moved further away from the maximum divergence allowed of 15 per cent.

Market views about the outlook for the pound and sterling were mixed. Bank of Ireland chief economist Mr Jim Power forecast that the latest fall in sterling will be temporary. "The fall has come on the back of nothing more than profit-taking after very strong surges. I believe that sterling will rebound because there is a lot of very negative sentiment on the deutschmark. Sterling and the dollar will gain again on the back of this sentiment", he said. The negative sentiment on the mark is based on a market view that the euro will contain eleven currencies, he explained. "The euro is shaping up as an unstable currency with credibility problems", he suggested. A rebound in the value of sterling would lead to renewed pressure on the Irish monetary authorities and the danger of another speculative attack on the Irish currency. Last week the pound dropped from 88.45p sterling to 87.3p in a matter of minutes when it came under pressure from heavy speculative selling. But another dealer suggested that sterling "may now have seen its peaks" and could continue to move down over the next few weeks. He contended that the latest fall in sterling reflected a build up of sentiment based on poor outlook for British exports and other economic factors.

"The correction was inevitable following recent rises in the currency but there is also a perception that interest rates will not be increased in August because of increasing pressure from UK businesses who want sterling to be curbed," he said.

Yesterday's fall in the value of sterling brought some relief to thousands of hard-pressed British exporters. Sterling dropped three cents against the US dollar to close at 1.633 dollars. Dealers in London said the fall followed appeals by business and union leaders to Chancellor of the Exchequer, Mr Gordon Brown yesterday to "talk down" the pound.

City sources said the comments encouraged dealers to believe the Bank of England's Monetary Policy Committee would hold off from raising interest rates when it meets next week. CBI director general Mr Adair Turner, and general secretary of the GMB union, Mr John Edmonds, had both warned at the weekend that the current high value of the pound could affect exporters and create unemployment.

They suggested that one way the Government could tackle this trend would be to voice support for Britain joining a single currency. Over recent weeks business organisations have been warning that the high level of the pound was creating a two-speed economy made up of a struggling export sector and a booming domestic sector.