THE POUND fell sharply against both the dollar and the Deutschmark yesterday as the birth of the single currency dried up liquidity in the world's foreign exchange markets, leaving them prey to unusual volatility.

Sterling fell nearly four pfennigs against the Deutschmark and was also down just short of two cents against the dollar, at three-week lows, as traders' caution ahead of the euro's debut on the markets slashed market volumes, amplifying the impact of relatively small currency deals.

Of course this was going to happen. Those who are narrow minded enough to see currency as important to their national heritage as their favourite beer or in are in for shock.

Real businesses that make and sell real products require that interest and currency fluctuation be ironed out of the market equation. The US dollar had better take good note. The US economy only has 260 million or so consumers, the EU at its present size has almost twice that number. A single currency will increase competitiveness to levels the US could only have nightmares about.