LAWSON REMARKS DASH HOPES OF EARLY U.K. RATE CUT
  Chancellor of the Exchequer Nigel
  Lawson's remarks yesterday suggesting there are precise
  exchange rate targets for the pound undermined sterling,
  dashing hopes for an early cut in U.K. Base rates, analysts
  said.
      But the market's reaction, testing exchange rate levels
  indicated by Lawson, was probably overdone and the longer term
  outlook for sterling remained bullish, they agreed.
      In an apparent break with the previous policy of secrecy,
  Lawson told a National Economic Development Council meeting he
  was comfortable with sterling exchange rates around current
  levels, specifying rates of around 1.90 marks and 1.60 dlrs.
      Lawson added the U.K. Government intended to keep sterling
  at about present levels, using currency intervention and
  interest rates to achieve this.
      The February 22 Paris agreement of the Group of Five and
  Canada to stabilise exchange rates is widely believed to
  include target ranges, but all participants to the meeting had
  so far refused to specify these.
      Markets were quick to react to the statement, chopping
  about one U.S. Cent and over one pfennig off the pound to match
  the levels mentioned by Lawson.
      But most analysts polled said they did not believe Lawson's
  statement signalled a change in U.K. Policy.
      Keith Skeoch, chief economist at stockbrokers James Capel
  and Co, said, "the remarks have been blown out of proportion.
  Lawson is paying now for a little bit of a slip of the tongue."
      Barclays de Zoete Wedd economist Mark Brett said, "there is
  nothing great and fantastic in the Chancellor's statement."
      He said he did not believe the rates indicated by the
  Chancellor were precise targets, but merely represented central
  rates around which sterling would be allowed to fluctuate,
  perhaps by as much as 10 pct.
      "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.
      Currency markets were keen for official statements to
  clarify the scope of the Paris accord and reactivate currency
  trading. This mood easily led to over-reaction, analysts said.
      "Making similar statements when the market is high strung
  and ready to bounce is perhaps a mistake," one senior dealer
  with a U.S. Bank said.
      Capel's Skeoch said, "it gives the foreign exchange markets
  something to shoot at."
      "It is obvious that the government, as a member of the Group
  of Six, has agreed exchange rate bands. But they are not cut in
  stone, they can change with time," Skeoch said.
      Brett said, "we think the 2.90 marks level is a central
  rate. Give or take 10 pfennigs and all is fine."
      Not all analysts played down the significance of the
  remarks, however. Chris Dunn, economist at Royal Bank of
  Canada, said the remarks may signal a decisive move to insulate
  sterling from the fortunes of the dollar.
      Although about two-thirds of Britain's trade is conducted
  with European countries, sterling has traditionally shadowed
  the dollar rather than the mark, analysts noted.
      "Britain must decide whether it wants to follow the U.S. Or
  throw in its lot with Europe," Dunn said.
      "It suggests that while the U.K. Is not actually applying to
  join the European Monetary System, it is seeking protection by
  shadowing it ... The Bundesbank has made it clear that it wants
  the U.K. To clarify its position relative to the mark," he said.
      Analysts said sterling's dip on currency markets following
  Lawson's remarks made an early half-point cut in U.K. Base
  rates from current 10 pct levels unlikely in the short term.
      "Over the next three weeks, a cut is out, unless we get some
  extremely good economic indicators," Capel's Skeoch said.
      Base rates have been cut twice by one-half point in March,
  the last after the March 17 budget presentation, and analysts
  had been expecting another half point cut shortly afterwards.