The pound has come under renewed selling pressure on the foreign exchange markets. The currency closed at 84.45p against sterling from 85.03p on Friday and at DM2.4892 from DM2.4991.

According to Mr John Beggs, chief economist at AIB, large-scale selling of the currency failed to materialise with traders fearful that the meeting of EU finance ministers next weekend could provide the Minister with a forum to announce a revaluation of the pound's central ERM rate.

Irish inflation data for December is also due next Tuesday and while a revaluation announcement next weekend is seen as unlikely, traders will be nervous of selling until both are out of the way.

However, Mr Beggs added, if the finance ministers' meeting passes without surprise and inflation does not surpass market expectations the currency will be sold further and could fall as low as DM2.47.

However, Mr Jim Power, chief economist at Bank of Ireland, said the pound is likely to fall as low as DM2.44 or DM2.45 if next weekend's meeting passes off without a revaluation announcement.

A further fall towards the pound's central rate in the Exchange Rate Mechanism could mean the pound falling as low as 82.5p against sterling if the UK currency remains around DM2.90, according to Mr Beggs. Nevertheless, he is confident that the pound will be back at 87p or 88p in the second half of the year.

Retailers are expected to pass on price rises quickly as the latest fall is seen as more permanent than previous falls. Many Irish imports from the UK are originally sourced in Asia and those price cuts should also be passed through, he noted.

A revaluation, on the other hand, would probably mean inflation running at below 3 per cent as the psychological affect pointing to a higher currency would outweigh the mechanical difference, according to Mr Beggs.