STERLING REBOUNDS ON LAWSON "TARGET"-DENIAL
Sterling made a sharp recovery when U.K.
Chancellor of the Exchequer Nigel Lawson described remarks he
made yesterday on targets for the pound as "insignificant,"
rallying back up almost exactly to the levels it had fetched
before Lawson spoke yesterday, dealers and analysts said.
    They said sterling would likely leave the limelight once
again to trade quietly around current levels, as the markets
set their sights on the dollar, yen and mark again ahead of key
international monetary talks in Washington next week.
    Sterling ended its European day at 1.6020/30 dlrs,
virtually unchanged from yesterday's last 1.6040/50 dlrs,
fetched before Lawson's first comment. But it was well up on
levels just above 1.59 dlrs which it had held until the second
comment came.
    Against the mark, sterling recovered to close at
2.9190/9240 marks after today's opening 2.9040/90 and last
night's 2.9210/45.
    "On balance, it is as if nothing happened ... We are back to
where we were before," Mark Brett, economist at securities house
Barclays de Zoete Wedd said.
    "This whole story is like a storm in a teacup," a dealer with
a U.K. Bank commented.
    The pound's recovery was triggered when Lawson criticised
media coverage of comments he made yesterday, when he told a
conference he wanted sterling to stay roughly where it was.
    In this context, Lawson was reported to have specified
rates of around 2.90 marks and 1.60 dlrs to the pound in
remarks which markets were quick to interpret as a signal to
sell sterling.
    Lawson said today he had merely stated yesterday's
approximate value of the pound.
    "The wrong end of the stick was picked up," he told
reporters, adding his comments did in no way signal a change in
British exchange rate policies.
    Dealers and analysts said the reactions to both statements
were clear evidence that the market, frustrated by the relative
currency stability after the February 22 Paris agreement, was
desperate to reactivate trading and would react to any clues
offered about the contents of the currency accord.
    In Paris, finance ministers of the Group of Five and Canada
are widely believed to have agreed exchange rate targets,
although no participant has specified these in an apparent bid
to foster stability by keeping markets guessing.
    "The markets are absolutely desperate to get clues on Group
of Six (countries that are part to the Paris agreement) targets
... The number of rumours flying around is bigger than ever
before," said Barclays de Zoete Wedd's Brett.
    Analysts said neither yesterday's remarks nor today's had
changed their impression that after Paris, sterling was
targeted to trade in broad ranges against major currencies.
     All polled analysts said if anything, the 2.90 marks level
mentioned by Lawson was probably the centre of a wide
20-pfennig range which sterling would easily hold, helped by
good economic indicators and relatively high interest rates.
    "It would be insane to pinpoint an exchange rate ahead of an
election ... I don't believe Lawson is mad enough to tie
himself to a fixed rate," Brett said. He expected sterling to
firm over the next few weeks, to around 2.95 marks and 1.63
dlrs, as overseas investors reappraised high-yielding
investments here.
    Robin Marshall, chief economist at Chase Manhattan
Securities, said he was not surprised to see Lawson qualify his
sterling target comments so quickly.
    "His remarks gave markets a target to aim at," he said,
adding, "He (Lawson) talked himself into a bit of a corner on
this ... It made him a hostage to fortune."
    Marshall and other analysts dismissed a theory, that by
quoting target rates Lawson had attempted to put pressure on
prime Minister Margaret Thatcher to agree to British membership
of the European Monetary System (EMS), as implausible.
 Reuter
