The pound came under renewed selling pressure early yesterday as banks and funds from New York and London sold the currency.

Dealers estimated that around £300 million was sold shortly after lunch yesterday. Later in the afternoon, however, different US banks stepped in, amid rumours of Central Bank intervention, and bought the currency.

Almost £100 million was bought in around half an hour, dealers said.

The pound closed at 88.08p against sterling from 88.69p on Friday and at 2.2938 deutschmarks from 2.6940.

Mr Jim Power, chief economist at Bank of Ireland, said there now seems to be a view among international traders that the pound should be sold when it reaches 2.70 deutschmarks and bought at levels below that.

Many multinational companies based in Ireland as well as large Irish corporates have also been buying significant amounts of the currency.

Dr Dan McLaughlin, chief economist at Riada Stockbrokers, pointed out that the tradeweighted index fell to a recent low of 65.9, the same rate which prevailed at the last interest rate increase.

However, according to Dr McLaughlin, the pace of the fall in the currency in April could have spurred the Central Bank into action.

"They may not be so worried this time," he noted.

The pound fell to $1.43 yesterday from around $1.45 on Friday. Mr Power noted that many companies consider these levels to be very good value. Their interest also helped boost the pound back over 88p, he noted.

Mr Power warned that both sterling and the dollar have the potential to rise further. Sterling benefited yesterday when the Bundesbank failed to make any comment about the future direction of interest rates.

Rumours had been rife in the market that the Bundesbank would switch to a floating rate yesterday.

However, Mr Power pointed out that its two-week fixed rate does not run out until next week.

Next Tuesday will thus be the vital day in determining whether German rates are on the way up in the near future, he said.

However, if both do go higher in the near term, the pound is set to fall back towards 87p, he said.

Sterling also benefited yesterday from the dollar's scrabble to reach its 1989 levels and from firm UK July output data.