The pound has continued to drift lower against sterling, as the British currency continues to gain on international money markets. Sterling broke through the psychologically important three deutschmark level, with talk of Swiss and New York funds buying the currency.

Sterling is being bolstered by talk of another interest rate rise and by concern over Asian and Russian risks.

The pound closed at 83.78p against sterling in late trade from 83.98p a day earlier, as sterling rose to DM3.0013 from DM2.9990 on Tuesday. Earlier in the session, sterling was trading as high as DM3.006, but was then sold in a bout of profit-taking and in some options-related trade, according to dealers.

Mr Pat O'Sullivan, economist at AIB, said the pound was likely to fall further in the short-term as sterling remained well underpinned.

"Earlier this week growth figures were worse than expected which would normally unsettle the market. The currency must be strong as it did not react."

He added that most traders would be unwilling to sell until they saw the unemployment and wage data due out in a couple of weeks.

Speculation about a British rate rise was fuelled late on Tuesday after comments from Ms De-Anne Julius, a member of the Bank of England's monetary policy committee, that the government's recent overhaul of public spending could be inflationary. Ms Julius is the only member of the committee to have voted for a rate cut so far.

The D-mark held on to its value against the dollar even as German inflation data confirmed price moderation making higher German interest rates seem less likely. But traders said it remained vulnerable to the instability resulting from the Russian financial situation. Mr O'Sullivan added that Irish bonds had quite a busy session. He said he was now expecting rate cuts to begin in September or October, around the time of the expected first German rate rise.