Franc under renewed pressure

The French franc came under renewed selling pressure on the foreign exchange markets yesterday, weakened by comments from the Bundesbank's chief economist, Otmar Issing, that German interest rates are unlikely to come down in the short term.

In late trading the franc slipped to 3.4263 to the mark, against 3.4202 on Friday when the currency was hit by growing concern over European monetary union and speculation about a rift between President Jacques Chirac and the Bank of France.

Rob Hayward, chief economist at BankAmerica in London, said comments by Mr Issing had sown more doubts about a cut in German rates and given a further boost to the mark.

The German central bank official told Die Welt newspaper that structural problems in the German economy could not be solved just by a cut in rates, while recent data hinted at stronger second quarter growth than most analysts had expected.

Paribas currency analyst Andy Chaveriat said that with little else to focus on, and with many of the larger players not looking to get involved in the market during the August holiday period, short-term traders have decided to push the French currency lower.

"So far the franc has held above support at 3.4225. However, if this breaks, then there's little further support this side of 3.4340," Mr. Chaveriat said. The franc will probably come under pressure again in the run up to the government's presentation of its 1997 budget, he added.