Massive profit-taking from international banks, combined with renewed speculation that the pound's ERM rate will be revalued, has halted the slide in the value of the Irish currency.
Goldman Sachs, one of the world's largest investment banks, bought almost £200 million of the currency yesterday in what was considered an attempt to make profits on earlier sales. The bank had bought almost £150 million on Thursday.
The volume of the buying orders drove up the price of the pound on the foreign exchange markets. The move came as news that German central banker Mr Klaus-Dieter Kuehbacher had revived the possibility of a revaluation of the pound.
He noted that the pound was the only EU currency to deviate far from its central rate in the Exchange Rate Mechanism. "If necessary the European council can . . . revalue the Irish pound when bilateral exchange rates with other currencies on January 1st, 1999 are set," he said.
Those rates will be set in the first weekend of May and economists warned yesterday that volatility in the pound could be expected until then, unless the Minister for Finance, Mr McCreevy, defines policy.
The pound has come under considerable pressure recently as speculators decided that the Government would allow its value to sink gradually to DM2.41, its central rate in the Exchange Rate Mechanism. The other option would be to announce a revaluation of the pound's central ERM rate. This would halt its decline as it would indicate that the currency would lock into monetary union above its existing central rate.
The Minister, however, is believed not to favour this option as it could hurt competitiveness, particularly for exporters, and would result in smaller payments to Irish farmers. Proponents of a revaluation argue that letting the pound fall to such an extent risks importing inflation as imports become more expensive. It also devalues Irish wages and savings.
But Mr McCreevy has steadfastly refused to comment on the currency or any related matter. The Labour Party leader, Mr Ruairi Quinn, has criticised his refusal to comment on the fluctuations. "Minister McCreevy's silence is not based on any serious policy consideration," Mr Quinn said last night. "Rather, it is a paralysis brought on by his fear that by saying something he will create problems for himself and the Government."
Mr Austin Hughes, an economist at Irish Intercontinental Bank, also warned that the uncertainty was hurting Irish business more than the speculators.
Mr John Beggs, chief economist at AIB, cautioned that the volatility was a further burden on business that other European firms did not have.
Mr Kuehbacher's comments, along with the large buy order, drove the pound up almost 4 pfennigs during the afternoon. It later fell back and eventually closed the day about 1.5 pfennigs higher, at DM2.5310. But the gains were not passed on to the sterling rate and the pound gained less than a third of a penny against the UK currency, closing at 84.60p.
Quinn says McCreevy refusal to speak on currency is due to fear: page 8; Why Irish consumers are being squeezed in Euro endgame: page 10; Profit-taking comes to rescue pound: page 16