Holidaymakers hit as pound slides

By Kevin Peachey
Personal finance reporter

Image source, Getty Images

The pound has fallen to its lowest level for five months just as many UK holidaymakers get ready to head off for the late-May half-term break.

Against the US dollar, the pound fell below $1.27 for the first time since January on Tuesday. It also fell early in the day against the euro.

But it picked up again later in the day in a sign of its current volatility.

Cabinet backing for Prime Minister Theresa May's latest Brexit plan led to the rebound.

Currency experts say Brexit uncertainty and the US-China trade war have both contributed to the pound's recent fall.

Buying money

Sterling had gained some ground in recent months, but in recent days rates have fallen back to the kind of levels seen during the Christmas holidays.

It is a very different picture from March 2008, when the pound was briefly worth more than $2.

Holidaymakers heading off for an early summer break in Europe or the US may be saving money by avoiding the even higher costs of travelling in July and August.

However, they are finding that their money will not go as far as it did a few years ago.

Anyone leaving it to the last minute and changing money at the airport will always get the worst rates. At some airports, they will find an exchange rate little better than parity between the pound and the euro.

James Hickman, chief commercial officer at currency traders FairFx, said that the best rates were given to those who ordered their holiday money ahead. He suggested that would also be a good plan for anyone thinking about their holiday money for later this summer.

Pound v Dollar

At present, the best rates on pre-loaded currency cards sees a pound buy just over $1.27 and just over €1.13.

Pound v Euro

For those collecting from an exchange bureau, the best deals will see the pound get slightly less than $1.26 and just under €1.13.

The Post Office - the most popular bureau for UK holidaymakers - sees anyone changing more than £400 receiving slightly over $1.24 and just over €1.11 for their pound.

The recent drop in the value of the pound has come amid speculation over the future of Brexit.

"When sentiment moves towards a higher likelihood of a hard Brexit, then we see a fall in the pound," Mr Hickman said.

The reverse is also true, shown by the rebound after the cabinet gave its backing to Mrs May's plan for her Withdrawal Agreement Bill, including compromises intended to attract the support of Labour MPs.

Sterling is also affected indirectly by the continuing trade war between the US and China.

Hamish Muress, currency analyst at OFX, said the pound was "suffering from the renewed uncertainty of Brexit, while investors flood to the relatively safer US dollar amidst the ongoing trade war".

"Looking forward, headwinds look stronger than tailwinds for the pound, particularly with another Brexit vote not set to take place for a few weeks yet. But perhaps the only real hope would come from Donald Trump pressing the pause button with regards to the trade war," he added.

Alana Parsons, from foreign exchange firm Caxton, said: "Getting the most value for your travel money can be tricky, but not if we spend as much time planning our finances as we do researching our holiday destinations."

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