THE Central Bank has intervened heavily in the currency markets, holding up the value of the pound against sterling.
In a busy day for currencies across Europe, the pound rose against the deutschmark on the back of a stronger sterling and dollar. However, the pound held its position against a stronger sterling due to Central Bank buying of the Irish currency.
The pound closed at 94.98p against sterling from 95.21p and at 2.6503 marks from 2.6644 marks.
Traders said they believed the Bank was trying to prove its mettle to the markets. There has been conjecture in recent weeks that the Bank would allow the currency to slide against sterling, in order to stop it rising further in the ERM band.
Traders said they still expected the Central Bank to seek a tower value in the ERM in the months ahead.
Rumours that the Guardian newspaper would publish a poll today showing the Labour lead sliding dominated the end of the trading day in London.
The poll shows the lead narrowing to just five points (42-37). However other polls indicate that Mr Blairs party is maintaining its commanding lead.
Sterling initially gained on the talk. However, Bank of Ireland chief economist Mr Jim Power, said he expected that position to reverse due to the uncertainty which the Guardian poll may create about the election outcome.
Other European currency markets remained jittery, as fears over monetary union continued to dominate in the wake of the snap French election.
The Italian lira lost ground against the mark, with traders nervous ahead of the publication of European Commission forecasts on key single currency criteria, particularly the deficit.
In a rare breach of protocol, Commissioner Ms Emma Bonino strongly criticised the forecasts, calling them "unbalanced" because of a widely leaked estimate putting Italy's 1997 deficit at 3.2 per cent of GDP.
In addition, Bundesbank Council member, Mr Johann Wilhelm Gaddum, said he saw no problem with monetary union going ahead with a small number of countries.
The lira dropped below the French franc at the bottom of the ERM grid despite political uncertainty in Paris after the calling of the election.
French Prime Minister Mr Jacques Chirac said the early election was needed to prepare France for a single European currency and to give his centre right coalition a five year mandate to reform the state, reduce public spending and cut taxes and welfare charges.
Socialist leader Mr Lionel Jospin said the Socialists too favoured the single currency but not at the price of an extra bout of austerity. "The market's a bit afraid of everything though it appears the Right has a good chance of winning, albeit with a smaller majority," one trader said, adding there was little chance of the Left taking power.
The pound rose to over II per cent ahead of the franc in the grid.
The news was more positive for Germany with six German institutes predicting its 1997 budget deficit between 3 per cent and 3.2 per cent, falling to 2.9 per cent in 1998.
