THE pound is hovering around parity against sterling and fell just below it in late trading yesterday after repeated Central Bank buying during the day.
For most of the day, it looked as if the Central Bank had temporarily lost its battle to keep the pound above loop, despite interventions during which it bought pounds in an effort to boost its value. However, in a late spurt, the pound managed to crawl over the limit to end official trading at 100.03p sterling.
However, in after-hours trading, it was again quoted below parity at 99.95p sterling. At the same time, the pound made further gains against the deutschmark, rising above DM2.50 in late trading, from DM2.4950 a day earlier.
The pound is now running away from the rest of the pack within the EMS, hot on the heels of sterling. At the close yesterday it was 4.41 per cent above the lowest currency in the system - the French franc.
Sterling continued its sparkling bull run, hitting $1.6560 - its best level since March, 1995. At the same time, it rose to DM2.5025, from DM2.4871 a day earlier.
Sterling's strength is due to the "differential between UK interest rates and the ones elsewhere in Europe, and to expectations of a new tightening of British monetary policy", according to James Capel analyst, Mr David Bloom.
"Despite its easing in late afternoon, sterling remains very strong," Mr Bloom said. "It is now in a consolidation phase."
The D-mark also made a small comeback yesterday afternoon as news came out that the Russian President, Mr Yeltsin had survived his heart operation.
The US presidential elections were also affecting the foreign exchange markets. A Republican win in Congress would boost the dollar and put at least a temporary halt to sterling's gains against it, traders said. "We know Clinton will be the future US president, but the key is who will control Congress," said a Geneva-based trader.
If the Democrats make gains in the race to control the US Congress, the dollar was expected to ease slightly in the short term, a survey of economists showed. The poll showed that a Democratic victory in either the Senate or the House of Representatives would have more of a negative effect than if Republicans retained control of both.
Mr Oliver Mangan, economist at Davy stockbrokers, said there was still a significant momentum behind sterling.
Traders are now looking to the Bank of England's quarterly inflation report due out today. "There are expectations that the Bank of England will be as hawkish in the monthly report as it has been in the past," Mr Keith Edmonds, chief analyst at IBJ said.
Tomorrow's Irish banking statistics are the main focus for the market here, but dollar movements after the US elections will also influence trading.
