THE pound has strengthened against the deutschmark and sterling as fresh jitters about the single currency rocked the foreign exchange markets.

French calls for a period of reflection on the "so called" stability pact boosted the deutschmark. The markets took the view that the confusion at the Ecofin meeting in Luxembourg made the prospect of a delay to EMU more likely.

Mr Jim Power, chief economist at Bank of Ireland, said the deutschmark strongly reasserted itself after the markets took the view that the French announcement seriously threatens the viability of the project.

The pound closed at 92.40p from 91.33p on Friday and at 2.5800 deutschmarks from 2.5705.

The German currency had weakened last week, reflecting the belief that the euro would be a weaker currency than originally planned.

There was significant buying of the pound by oversees investors. Mr Power said this was mostly "short" covering after the selling of last week.

The pound's strength failed to take all the pressure off interest rates. While the strength should have alleviated the pressure the markets remain nervous.

If there is an announcement soon Irish rates would jump by 2 or 3 percentage points, Mr Power warned.

Nevertheless, he added, it was still likely that the project would go ahead. As a result this period of deutschmark strength was likely to prove temporary. "I would expect deutschmark weakness to return and sterling to regain lost ground, which would be an ongoing source of concern for the Irish authorities."