Among the main developments
- Market pessimism over US economic performance and consequent expectations of further easing of us monetary policy led to a resumption of the downward trend in the dollar, which fell by 7% in effective terms in the three months to August. Sterling was affected by oil price worries and depreciated sharply against the major currencies other than the dollar, particularly the deutschemark. The EMS was realigned in August, with the Irish pound devalued by 8%.
- In the international capital markets, uncertainty over interest rate trends was reflected in a sharp decline in activity in the fixed-rate bond sector in the three months to August and a resurgence of issues of floating-rate notes: financial institutions and sovereign borrowers accounted for virtually all FRN issues in the period.
- The first quarter of 1986 saw a sharp fall in both BIS-area banks' lending to, and deposits from, countries outside the reporting area; the largest reductions in claims were on oil exporting countries and Latin America. BIS-area banks' lending to non-bank final users in the (reporting) industrial countries, on the other hand, remained buoyant with the United States absorbing the bulk of these eurocurrency funds.
- London market data for the second quarter show only a modest resumption in UK banks' lending to 'outside-area' countries and a further drawdown of their deposits. Oil exporting countries and the Eastern bloc were the main takers of funds.