Pound dives on referendum talk

THE pound tumbled to its lowest level against the euro for six months today following the remarks by Stephen Byers. With sterling way above levels likely for monetary union, the prospect of the Government holding a referendum on scrapping the pound in favour of the single currency next year triggered a wave of selling.

The pound's fall effectively left the value of the euro at 62.87p at one stage. About 65p to the euro, equivalent to about three German marks in old money, is seen as the highest possible entry level Britain could live with.

Nick Parsons of Commerzbank said: 'No doubt the Treasury and UK manufacturing would like an entry level of between 2.8 and three German marks, but I don't think Europe would allow the UK to join below three marks because it would give us an unfair advantage.'

Parsons predicted that sterling will be in for a rollercoaster ride against both the euro and the dollar over the next couple of months as public opinion towards euro membership ebbs and flows. 'It will be a challenging environment for both businesses and the City,' he said.

Speculators were today given their first chance to gamble on the percentage votes in a British referendum on whether to join the euro - and, surprisingly, the bookie's opening quote favoured a 'yes' vote. Spread betting bookmaker Cantor Index said it was quoting a price of 51.5% to 52.5% for the 'yes' vote.

Cantor's spread flies in the face of opinion polls in recent years. However, David Buik at Cantor Index said: 'We have set our spread for the 'yes' vote this high because we believe that the Prime Minister will not call a referendum unless he is very confident of winning it.'

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