Bundesbank move calms currencies

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The Independent Online
THE POUND rose slightly yesterday as the Bundesbank's decision to cut its key interest rates on Thursday continued to soothe the troubled European exchange rate mechanism.

Sterling closed just over a third of a cent higher at dollars 1.4483 and nearly a pfennig stronger at DM2.3998. It ended at 77.7 per cent of its 1985 value against a basket of currencies, up 0.2 on the day but half a point down on the week.

The Danish krone rose above its central rate in the system of DKr3.8144 as dealers covered speculative short positions. A rise in Danish interest rates and intervention by the ERM's 'hard- core' central banks had failed to lift the currency decisively off its floor ahead of the German move.

Most analysts do not believe that the German rate cuts will be enough to preserve peace in the ERM beyond next month's French national assembly elections. The French franc made little ground yesterday, in part because of a reduction in the French overnight lending rate by 5 16 of a percentage point.

The need for much lower rates in France was reflected in the announcement of a 0.7 per cent fall in French factory output in the third quarter of 1992.

The cut in German rates also allowed the Irish central bank to ease its rates. Bertie Ahern, the Irish Finance Minister, said he welcomed the German cut, but that it 'would have been more effective if it had come sooner'. Ireland was forced to devalue the punt by 10 per cent last weekend, the largest realignment in the ERM's 13-year history.

The dollar ended the day slightly lower against the mark at dollars 1.6555. It was little moved by the US employment figures, but hit in late European trading by rumours that the Federal Reserve was poised to cut US rates.