During the four months from March to June sterling came under recurrent downward pressure, which at times was intense. The pressure was reflected both in a fall of some 12% in the exchange rate - whether against other main currencies weighted together or against the US dollar alone - .and in heavy official borrowing and drawings on the reserves, which together amounted to nearly £2,800 million.
This article first refers to the balance of payments accounts in order to identify, by main category, the flows which in fact took place and which form the statistical counterpart of the official financing that was supplied. It then examines in a broader context various ways in which pressure on sterling can, in principle, develop. A further section discusses the difficulties of identifying and measuring particular sources of pressure, and notes the limitations of balance of payments accounts for this purpose. The conclusion is that it is difficult to identify precisely the sources of pressure on sterling, but it is unlikely that events would have run the course they did had there not emerged a widespread view that sterling was overvalued.
The balance of payments and the exchange rate - developments in the first half of 1976