The pound has come under renewed selling pressure, drifting lower against both sterling and the deutschmark. The pound lost almost a pfennig after one fund sold up to £100 million through Amsterdam yesterday.

The significant selling follows large sales orders from London and New York at the end of last week, when almost £250 million was sold.

The pound closed at DM2.4930 from DM2.5031 on Friday and at 83.41p from 83.87p.

Dr Dan McLaughlin, chief economist at Riada Stockbrokers, said last week's good inflation figures had prompted the selling. "It is seen as providing even less reason to revalue," he said.

Mr Kevin Daly, economist at Ulster Bank, added that inflation is now unlikely to pick up enough to prompt a revaluation of the pound's central ERM rate. "Inflation will probably pick up gradually, but not enough to prompt a rethink from Mr McCreevy," he said.

According to data released last week consumer prices fell 0.6 per cent in January and rose only 1.8 per cent on the year, pointing to continuing competition in the retail sector in particular.

Supporters of a revaluation point to the inflationary dangers of allowing the pound to weaken significantly.

However, so far there has been no evidence of a pick-up in price pressures.

As a result, the pound is now only 3.5 per cent above its central rate in the exchange rate mechanism, which is seen as it most likely entry point to the single currency.

And, according to Dr McLaughlin, it is only 2 per cent above the central rate at the beginning of 1999, if interest rates are taken into account.

"If the pound were going to be revalued it would have to be by a sensible amount like 5 per cent," Dr McLaughlin said.

"And a revaluation of only 2 per cent would be pointless so its current level is rather odd."

According to Mr Daly the pound is now likely to drift lower against the deutschmark over the coming weeks.

He added that in the short term this could mean the pound falling as low as 82p against sterling as the UK currency remains strong.

However, he added, that sterling will fall by the second half of this year at the latest, prompting a rise in the pound to around 90p.

One possible reason for the pound's slow decline to its central rate is continuing residual uncertainty about the single currency.

The German constitutional challenge to the project has not yet been cleared up, although few believe it has even a slim chance of succeeding.