Currency chaos hits pound

Full-scale panic returned to the foreign exchange markets yesterday. The weaker European currencies - including sterling, the Italian lira, French franc and peseta - went into free fall for part of the afternoon.

In conditions dealers described as chaotic and frantic, the pound reached a new low of DM2.1890. The lira fell from an opening value of 1,216.5 to the mark to 1,275 in mid-afternoon. The peseta held just above its previous record low of 93.55 to the mark.

Trading volumes were low, but analysts said the currency movements reflected reactions to the Bundesbank's failure to cut German interest rates on Thursday. Rumours and political concerns also played a part in yesterday's panic.

Alison Cottrell, international economist at Paine Webber, said: ``There is talk of capital controls in Spain and Italy, rumours of interest rate hikes, speculation that various countries will leave the exchange rate mechanism. Nobody wants to be parked in lire or pesetas over the weekend.''

The lira was hit by the realisation of how narrowly the Italian budget had scraped through parliament. The country's need for far more radical fiscal reform is expected to trigger an election later this year, even though the government survived this week's confidence vote.

Neil MacKinnon, chief economist at Citibank, said: ``The pound is on the ropes again because investors are unsettled about the political landscape. They have seen the Barings collapse, the electricity shares fiasco and Kenneth Clarke putting his foot in it all week. They are staying clear.''

The latest Gallup poll on consumer confidence, showing another deterioration in expectations about both the economy and personal finances this month, also affected the pound.

Mr MacKinnon said sterling could fall as low as DM2 this year. Other analysts agreed that there was no end in sight to the three-week-old currency market turbulence now that hopes of a cut in German interest rates have been dashed.

Hans Tietmeyer, Bundesbank president, repeated his hints that a small fall in German rates was possible. ``The mark is slightly overvalued against some currencies,'' he said.

It was clear that holding out this hope to the markets would not work a second time. Kit Juckes, at SG Warburg, said: ``It looks as though it would take a huge crisis to make the Bundesbank veer from its course.''

There were, at the same time, few expectations of interest rate increases in the weak currency countries to help stabilise exchange rates. Statistics on the UK and US economies suggest the pace of expansion is slowing.

Comment, page 17

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste