The pound has fallen against the deutschmark after the weekend meeting of EU finance ministers in Luxembourg. The currency closed at DM2.6640 from DM2.6817 on Friday. However, it gained slightly against a weakening sterling t 94.35p against 94.12p the previous day.

The only surprise for the market from the meeting was the definitive commitment to announce how exchange rates will be set next May, which is generally seen as ruling out a revaluation of the pound's central ERM rate in the short term.

Many analysts expect the pound to trade lower, as speculators begin to lose faith in the prospects for a revaluation. An article in today's Financial Times reflects the debate under the headline "Dublin may manage to avoid revaluation."

Mr Jim O'Leary, chief economist at Davy Stockbrokers, said the pound was in part tracking sterling lower against the German currency. The second reason for yesterday's fall, according to Mr O'Leary, is that rates in Germany have edged up while rates here have softened.

According to Mr O'Leary, these two reasons account for nearly all of yesterday's fall. In the run-up to last weekend's meeting many international players had been betting that our central rate would have to be revalued upwards, perhaps as early as last weekend.

As people begin to revise these expectations for a revaluation of the pound's central rate of DM2.41, the Irish currency should fall further, he predicted. He added that a sell-off, as players realise a revaluation is becoming more distant, could happen later this week.

"The pound is quite fragile at these levels," he warned. "It could fall by two to four pfennigs over the week and at the very least there is very little upside. We can't rule out the possibility of joining at the current central parity."

Mr Jim Power, chief economist at Bank of Ireland, is also expecting the pound to continue to fall gradually over the coming weeks in line with sterling. But it will not "fall out of bed", he predicted.

The announcement underlining progress to monetary union also boosted the money markets. Rates at the longer end have now fallen below 6 per cent over both six and nine months. As yet the one-month rate which is key for mortgage borrowers and those with overdrafts did not move. Most analysts believe that it will be at least the end of this year before any decreases are seen.

Short term Irish interest rates are still significantly above comparative German levels. According to Mr Power, they will have to fall close to German levels around next May.

This would imply a fall of about one percentage point over that time, he said.

Mr O'Leary said he does not see rates changing unless the currency appreciates significantly or unless there is a sharp deceleration in credit growth. "The Central Bank is still very cautious about credit," he added.

Traders said they will be watching German rate moves carefully. The President of the Bundesbank, Dr Hans Tietmeyer, said the central bank would have less freedom to raise rates after next May's decision on the participants. Traders believe this means that German rate rises will arrive sooner rather than later.