News Column

What a strong pound means: Currency questions

June 17, 2014

Rupert Jones

What's happened?

Growing expectations that UK interest rates will rise within the year are propelling the pound upwards. In early trading in London it rose above the $1.70 mark for the first time since August 2009, before later slipping back slightly. The pound also rose against the euro, passing the euros 1.25 mark.

What does it mean for business?

Imports become cheaper, making life easier for retailers, which can sell food and white goods at lower prices. Manufacturers enjoy cheaper raw materials and can retain the benefit if they sell their wares in the UK. But exported goods and services become more expensive.

I'm not going away until August. Should I buy my currency now?

Compared with this time 11 months ago, the pound is up 14% against the dollar, so anyone changing pounds 500 will pocket an extra $103. The pound has risen 8% versus the euro on 10 months ago - meaning an extra euros 45 for every pounds 500 exchanged.

Holidaymakers keen to lock into today's exchange rates could consider a prepaid currency card. They tend to be issued by specialist foreign exchange companies such as Travelex, Caxton FX and FairFX, and typically allow you to preload money from your bank account on to the card.

If you are considering one of these cards, check the exchange rate, and the fees and charges for using them. If you leave a balance on them you may be hit with a "non-usage" fee.

Will the pound strengthen further?

Alex Edwards at currency firm UKForex said: "This week we have UK inflation data on Tuesday and the monetary policy committee meeting minutes on Wednesday, at which point we should learn more about the appetite for rate hikes from MPC members."

What if I decide to hold on until I go?

If you do decide to hold fire on sorting out holiday money until you go, don't buy it at the airport, pre-buy it online a few days before departure and your cash will go considerably further.

Meanwhile, pick the right plastic to use while you are away. The Norwich & Peterborough Gold Classic current account, for instance, is one of the very few accounts that offers free debit card usage abroad. Rupert Jones

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Guardian (UK)

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