The review describes developments in various markets, mainly during the period August to October.
During these three months expectations in financial markets changed markedly: under the influence of sharply rising US interest rates and growing uncertainty about the domestic economic situation, the markets moved from believing that minimum lending rate would fall to believing that it would go up. There was an all-round rise in short-term interest rates and in yields on gilt-edged stocks. Early in November, minimum lending rate was in fact raised sharply, by 2½%, partly in acknowledgment of the general rise in rates that had taken place but also in order to establish a new level appropriate for the continuing restraint of monetary expansion.
The main feature in the foreign exchange markets during August to October was the continuing weakness of the US dollar. Measures to support the dollar were announced on 1st November and had an immediate strengthening effect on the currency.
The review contains the usual sections on international banking and the euro-currency markets, oil money movements and the commodity markets.
Published on
01 December 1978
Financial review