First differences of magnetic observatory monthly means for 1963--1982 were analyzed using techniques of spherical harmonic analysis and power spectral analysis. The external source signal is shown to be primarily zonal in geomagnetic coordinates. Prominent peaks are present in the power spectrum at frequencies of 1.0 cycle/year and 2.0 cycles/yr. The annual signal is largest on the degree 2 external zonal spherical harmonic, while the semiannual signal is largest on the degree 1 and degree 3 external zonal spherical harmonics. The presence of the semiannual signal on odd-degree spherical harmonics and of the annual signal on even-degree spherical harmonics was predicted from symmetry considerations and the annual cycle of solar inclination. These signals are all modulated by the sunspot frequency and its harmonics. The degree 1 term is believed to be due mainly to magnetopause and ring currents while the degree 2 and degree 3 terms are believed to be due mainly to ionospheric currents. The degree 1 external zonal harmonic has a continuous spectrum in addition to the semiannual spectral peak. A corresponding degree 1 internal term is due to electromagnetic induction. The degree 1 continuous spectrum is useful for study of the electrical conductivity of the deep mantle. A global geomagnetic response function consistent with a mantle conductivity of about 10 S/m at the core-mantle boundary has been derived.