THE pound tell again yesterday in the foreign exchange markets, with some participants saying they saw signs of the Central Bank intervening to sell the currency.
The pound fell to 102.53p against sterling from 102.86p a day before and 103.04p late last week. At the same time the pound closed at 2.4372 deutschmarks from 2.4296 deutschmarks a day earlier and 2.4360 deutschmarks last week.
Unusually, the pound failed to follow the dollar and sterling higher against the core European currencies. The dollar pushed ahead against the European currencies as a whole yesterday boosted by a strong performance on the US bond markets and an interest rate cut in Switzerland.
The deutschmark was weak all day, despite intervention by central banks to support it.
US bond markets picked up after upward pressure on US rates eased on news of a slowdown in US economic activity. Order for durable goods fell, and first time applications for unemployment benefits rose by 11,000 in the third week in September.
The deutschmark was generally feeble, except against the pound and the Swiss franc. Analysts said the Bank of Italy, and perhaps other central banks, intervened to support the deutschmark.
Mr Jim O'Leary, chief economist at Davy stockbrokers, said the market would normally expect the pound to rise substantially against the deutschmark in these circumstances, following sterling and the dollar.
The fall, he said, indicated there could well have been intervention by the Central Bank. Earlier this week, the Bank was selling pounds which analysts saw as an attempt to avoid a revaluation of the "green pound" which would result in subsidies to farmers being cut. Intervention money "is paid in ECUs and a special rate has been set in relation to the pound for this agricultural aid - the "green pound".
However, the pound needed to remain below a 5 per cent trigger point against its "green" level until next Monday to avoid the revaluation.
Traders said the Bank may have been pushed into action yesterday as the pound was in danger of breaching the 5 per cent limit.
However, some analysts believe the Central Bank has been intervening simply to keep the pound within a very close target band around the deutschmark. Mr Dermot O'Brien, chief economist at NCB Stockbrokers, said he didn't believe the Central Bank would intervene to favour one interest group.
At the same time the lira gained ground yesterday. Its show of strength has reignited speculation that it would rejoin the European Monetary System by year's end. Helped by the deutschmark's weakness, the lira fell through the symbolic level of 1,000 to the deutschmark and then stabilised at a point slightly below 1,000 lire after intervention by central banks on behalf of the deutschmark.
Analysts now say there is no doubt that the lira will get back into the European Monetary System (EMS) before the end of the year - but the re entry level has still to be decided.
"The market firmly believes that Italy, as well as Sweden and Finland, will be in the EMS in December," said Mr Peter vont Maydell, an analyst at Union, Bank of Switzerland.
And Mr Joe Prendergast, at Merrill Lynch brokerage house, predicted that "the lira will be in the EMS in the next two months".
The rally in the US bond market also fed through to Ireland, which continued to see substantial foreign buying.
Dr Dan McLaughlin, chief economist at Riada Stockbrokers, said many institutions were still relaying the "convergence trade", or betting that Irish yields would fall to levels around those in Germany in the run up to monetary union.
Irish yields are around 1 percentage point higher than those in Germany and many other European countries.
"If we are going to go in, it remains the buy of the century," Dr McLaughlin said. "All the other countries which are seen as likely to enter EMU are trading at the same level as Germany, so if we go in, the yields will have to narrow substantially."
