Soros's Netherlands Antilles-based Quantum Fund had taken a 'massive short position' in the franc in the last week, according to one source. This means that Quantum sold francs that it did not own in the hope that the price would fall and that it could buy back francs more cheaply to fulfil its obligations. It is believed that Quantum had sold more than Fr10bn ( pounds 1.2bn) at one point.
The New York-based Mr Soros made his killing in sterling by selling pounds at the beginning of Black Wednesday - 16 September - and buying them back more cheaply the next day.
The pressure on the franc was relieved at the end of last week by the Bundesbank's decision to nudge down short-term money market interest rates from 8.75 to 8.6 per cent. This was seen as a signal that the key German Lombard and discount rates could be cut as early as next month, allowing rates to fall in other ERM countries.
Dealers still believe, however, that the Irish punt may not be able to resist pressure for a devaluation.
Sterling's ability to sustain its recent strength may depend on the crop of British inflation indicators due this week. These are expected to give conflicting signals. The rate of increase in industry's fuel and raw material costs is expected to be the most alarming, accelerating to an annual rate of 6 per cent in the year to December.
Retail price inflation is expected to fall sharply from 3.6 to 2.7 per cent, but the underlying measure, excluding mortgage interest payments, is forecast to rise slightly to 3.7 per cent.
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