It ended at DM3.0963, from 3.0962 on Monday. The sterling index climbed 0.1 to 108.9, just beating its April 1988 peak of 108.9 to reach the highest level since late 1985, having hit 109.2 earlier in the day.
Gordon Brown insisted yesterday there was no quick fix to the problem of the strong pound. Repeating the mantra that the Government wanted a "stable and competitive pound in the medium term", the Chancellor told MPs on the Treasury select committee: "I don't believe that there is a short-term easy answer."
He said the strength of the pound was in large part a cyclical phenomenon, with the gain much stronger against European currencies than the US dollar. "This is not a time to give in to short term pressures but to stick with the long-term view," Mr Brown said.
He said it was up to industry and the financial community as well as government to be long-termist, and made it clear that he thought the Government had done enough to contribute to stability with the tough Budgets in July and last month. "To resort to the old economics of stop-go would be the worst possible course for the British economy."
Adair Turner, director general of the CBI, accepted that the latest Budget had been tough enough but warned that any further rise in the pound would cause serious problems for exporters.
Mr Brown's replies will redouble the focus on next week's decision on interest rates by the Bank of England's Monetary Policy Committee.
Mr Turner said: "The MPC has to take into account the impact of the strong pound on part of the economy." The CBI would like to see either no interest rate rise next week, or a rise accompanied by a clear statement that this was the peak.
Some analysts predicted the pound could easily climb another 10 pfennigs to above DM3.20 before falling back later in the year.
"There is no particular reason for the pound to have gone higher this week except for the fact that currency traders are pushing it," said Jonathan Loynes at HSBC Markets.
The strength of the British economy relative to most of its trading partners, and the appeal of the pound as a safe haven from any possible EMU turbulence, are expected to underpin its current level.
The renewed surge in the currency has prompted ever more anguished complaints from exporters. Companies have pointed to the strength of sterling as the main reason for declining profits, and business organisations report anecdotal evidence that job losses will follow.
City experts do not think there is much scope for the Chancellor or the Bank of England to do anything about the pound. While some argue the Budget should have been tougher, to remove the pressure for higher interest rates, there are no fresh steps Mr Brown can take.
Ruth Lea, head of policy at the Institute of Directors, agreed: "We have to wait for economic events to take their course. The pound is likely to stay pretty strong for six to 12 months."
The Bank's Monetary Policy Committee will meet next week to pass its verdict on interest rates. Little relief is expected from central banks overseas, with the US Federal Reserve appearing set to leave US rates unchanged last night and the Bundesbank expected to do the same later in the week.
Business is unanimous in urging the MPC not to raise UK rates any further, while the Treasury has been keen for it to get any necessary increase over with, so that it can signal to the markets that the peak has been reached.
Since January the committee has been split over whether or not the cost of borrowing should rise. Eddie George, the Bank's Governor, used his casting vote to keep them unchanged in February, the latest month for which minutes have been published.
Since last month there has been no evidence on the economy to tip the balance decisively one way or the other. While the signs are that growth is slowing, it is not clear that it is slowing fast enough to keep the lid on pay and inflationary pressures.
Evidence on pay settlements is coming under close scrutiny. If wage increases do stabilise, the risk of a final interest rate rise to keep inflation on target will probably be averted.
Outlook, page 21
Committee report, page 2