A sterling rally on international currency markets and some heavy selling of the pound meant the Irish currency lost ground yesterday. The pound closed at 88.60p sterling in late trade, almost 1p down from its opening level of 89.50p.
On a lively day, some dealers reported big volume selling of the pound, estimating sell orders at between £200 million to £300 million. But other dealers contended that these estimates were too high, adding that there was good two-way trade with strong buy orders from Irish corporates. By the close of business, the pound was weaker against the deutschmark, closing just over a pfennig down at DM2.6760. The pound was just over one cent lower against the dollar at $1.4520 as the US currency rallied.
Dealers said renewed sterling strength reflected concerns about the euro and the direction of German interest rates. Some dealers suggested the sell orders for the pound could reflect speculators judging it was time to take profits or a judgment that a revaluation of the central parity rates in the Exchange Rate Mechanism was unlikely. Speculative selling of the pound will concern the monetary authorities because of the danger of a repeat of events last April when there was a serious run on the currency. But the pound is still off its low last week of 87.3p sterling.
Sterling opened at DM3.01 and weakened to DM2.9920 before rallying in the afternoon to move ahead to DM3.0219. The British currency rallied after Chancellor of the Exchequer, Mr Gordon Brown effectively ruled out any intervention to dampen consumer demand. In a report in the London Times, Mr Brown said he would not be holding an emergency budget in the autumn to increase taxes on consumption as he had been advised by leading economic figures. Arguing that "it is short termism that has bedevilled Britain in the past", Mr Brown said he was not going to lose sight of the central objectives and confuse the short term with what was necessary for the medium and long term. "Judge me over a period of years, not weeks," he said. The comments were taken by the markets to indicate that Mr Brown would not intervene in the Bank of England's deliberations next week on whether to raise interest rates.
As recent noises from the Treasury indicate that the Chancellor feels that manufacturing industry, hardest hit by the over-valued sterling, will be able to weather the rise, dealers moved to close earlier positions taken when the possibility of further consumer dampening measures took the shine off sterling.
Some US economic statistics released yesterday helped the dollar, though the market is waiting for important non-farm payroll figures due today. A higher-than-expected price component element in the Chicago Purchasing Managers' Index renewed expectations of a rise in US interest rates, benefiting the dollar. Second-quarter US gross domestic product figures released yesterday were seen as broadly neutral but the figure was ahead of expectations. The broadest measure of total US economic activity expanded at a 2.2 per cent annual rate in the April-June quarter, against expectations of a 1.9 per cent rise.
