The pound fell back against the deutschmark yesterday as the German currency was boosted by massive buying. Sterling fell back over three pfennigs against the deutschmark, following British and US stocks lower on the back of the slide in Asian stocks.

A reported $2 billion (£1.33 billion) buy order for deutschmarks from a large US fund manager also boosted sentiment in the German currency.

The pound closed at DM2.5977 from DM2.6069 a day earlier and at 90.05p against sterling from 89.40p.

Mr Kevin Daly, economist at Ulster Bank, said the reason for the large order was probably a shift in emphasis away from Britain's EMU credentials to focus on the relative strength of the German economy, which seems to be recovering respectably, and the British economy which seems to be weakening.

Nevertheless He said the pound was still pricing in a revaluation of its ERM central rate of 14 pfennigs which is "too high".