STERLING bounced off the session's low levels yesterday after shedding more than two pfennigs when Bank of England Governor Eddie George said there was ''exaggerated strength'' in the pound's exchange rate.
In London trading, sterling closed almost a pfennig lower on the mark at DM2.8185, and shed almost a cent against the rampaging US greenback at $1.6275.
The trade weighted index was down 0.40 at 99.60.
Sterling - up 20% against a basket of currencies since August of 1996 - has seen its strength squeeze UK exporters and brokers have issued savage stock downgrades against some groups with overseas earnings.
Sterling and the dollar have gained in recent days as safe haven currencies. Investors have snapped them up and dumped the German mark after a bitter row erupted between the Bundesbank and Chancellor Helmut Kohl's government over plans to revalue Germany's gold reserves to ease entry into the European single currency. A safe haven currency is a shelter used by investors in times of uncertainty.
The dollar lost its edge but remained firm against the mark in the afternoon after the Chancellor said Bonn remained on track for European monetary union (EMU) despite the bruising row with the Bundesbank.
The dollar hit four-week highs in early trading as the German government retreated from controversial plans to revalue assets to help alleviate the deficit to meet entry demands for EMU.
Although a series of statements by Mr Kohl, finance minister Theo Waigel and Bundesbank president Hans Tietmeyer calmed the wobbly foreign exchange market, traders said the fallout from the battle between the government and the powerful central bank would be felt for some time.
By the close of trading, the dollar was quoted at DM1.7317 compared with DM1.7263 in late trading on Tuesday.
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