Among the main developments:
- The combined current account deficit of the major seven OECD economies is estimated to have contracted further in the third quarter of 1986, largely reflecting increases in the Japanese and German surpluses.
- In the international capital markets, activity in the fixed-rate bond market remained relatively subdued in September and October. The recovery in the FRN sector continued in September, reflecting in particular HM Government's $4 billion issue, but fell back in October.
- BIS-area banks' cross-border lending rose substantially in the second quarter of 1986, mainly reflecting an unusually large expansion in interbank lending within the reporting area. Outside-area countries, particularly oil exporting countries, which continued to draw down their deposits on a substantial scale, were large net takers of funds from the international banking markets: the Eastern European Bloc was the largest borrower from BIS-area banks in the quarter.
- In the foreign exchange markets, the dollar fluctuated widely in September and October but strengthened overall, by 2% in effective terms. Oil price considerations and bearish sentiment led to renewed pressure on sterling, which fell by more than 5% against the dollar and over 3% in effective terms during the period.
International financial developments