Early in September, it became known that the balance of payments had moved into surplus in the second quarter of the year; and the trade figures released in September and October gave the first indications that the surplus had increased in the third quarter. In these circumstances, sterling stood up fairly well to testing conditions during the three months August to October, with which this Commentary is mainly concerned. The exchange markets were affected by the devaluation of the French franc early in August, by renewed speculation about the Deutschemark with the approach of the West German federal elections in September, and by reports at about the same time that greater exchange rate flexibility was to be considered at the annual meeting of the International Monetary Fund. In addition, interest rates abroad remained very high, and several central banks overseas again found it necessary to raise their discount rates during this period. The decision of the West German authorities to suspend their official buying and selling rates for the Deutschemark, and the eventual announcement of a new parity on 24th October, removed an uncertainty which had long been overhanging the markets, and sterling improved steadily.