The Italian currency yesterday plunged to a record 1,000 per mark from 988.75 the day before, prompting the Bank of Italy to step into the market to stem the lira's fall. By the close, however, the lira had recovered slightly to 990.30 after the market was heartened by reports that the Italian president, Oscar Luigi Scalfaro, had begun consultations to form a new government with widespread parliamentary support.
But analysts predict the currency will come under further pressure, especially if efforts to form a new government prove difficult.
In sharp contrast to the lira, the French franc yesterday remained stable following the overwhelming victory of the right-wing coalition in the second round of French parliamentary elections on Sunday. The franc finished little changed at Fr3.3955 to the mark and comfortably above its European exchange rate mechanism floor of 3.4205.
Fears of a speculative attack on the franc soon after the elections have proved groundless. But analysts still expect the markets to test the new government's commitment to the franc fort policy, especially if the decline in German interest rates proves to be slow and limits the prospects of lower French rates, a key goal of the right-wing coalition.
David Cocker, an economist at Chemical Bank, said: 'We expect a continuation of the Bundesbank's slow and steady easing of monetary policy. But will it be fast enough for France? the answer is probably not.'
Elsewhere on the foreign exchanges, the dollar dipped, losing a third of a pfennig to DM1.6305, after a sharp fall in US consumer confidence.Reuse content