Sterling had another rocky ride on the markets yesterday, tumbling to another 15-year low against the dollar before appearing to find its feet.
Speculation that a new Labour government would propel the UK towards membership of the euro zone helped send sterling a cent lower in early trading to $1.38.
It also lost further ground against the euro, which closed at 61.23p last night against 60.79p a day earlier. But sterling later regained its poise as traders squared their positions ahead of the election results. By early New York trading it had pushed back up to above $1.38.
Sterling's fall over recent days has convinced many analysts that a strong pro-euro stance by the UK government itself will bring sterling down to a more viable entry rate.
Deutsche Bank argues that if the market starts to price in even a 50/50 chance of British membership of monetary union, sterling may fall as low as 3.05 deutschmarks from its current level of DM3.20.
But economic consultancy 4Cast envisages a more troubled journey for sterling towards viable euro-zone entry levels.
Even if sterling does fall swiftly this may result in rising interest rates to offset the inflationary impact, said Mr Attrill, taking the UK further away from rate convergence and possibly strengthening sterling.
