What’s happening in the currency world?

If you are jetting away to sunnier climes this summer, you may need to be prepared for storms when it comes to your foreign currency.

The low cost sun and fun of Europe may not pan out this year, and if you buy Euros at the airport – the very worst place to do so – you might even find you are offered less than one Euro for a Pound.

Things may not be much better if you are heading further afield. The pound has fallen against the dollar too, which means it has fallen against most currencies around the world. Unless you take the right precautions before your trip, it could cost you a great deal.

Why has the pound hit the floor?

Back in 2015, just four summers ago, you could expect to get at least €1.32 for their pound. At time of writing it is below €1.09, close to the lowest it’s been since April 2017. The big fall began in 2016 after the UK voted to leave the European Union, and it is the current growing fears of a no-deal Brexit that are now driving it even lower. With Boris Johnson now at the helm, the government has toughened its stance on a no-deal Brexit, and now says it is “a very real prospect”. Economists warn that the pound could continue to shed value in the run-up to the next Brexit deadline on 31^stOctober, making sterling less attractive to investors, and meaning that your pounds buy less foreign exchange.

A fall in the pound makes everything bought from abroad more expensive- be it a new Mercedes or a meal in a beach bar. The converse is also true. It is cheaper for overseas customers to buy UK exports.

But there is no reason to scrap your holiday and arrange a staycation just yet. Obviously, there’s nothing any of us can do about whether the pound is rising or falling, but there are ways to maximise the amount of foreign cash that your pounds will buy – starting by shopping around for the best exchange rates.

Rather than just calling in to the nearest Bureau De Change and taking whatever rate they’re offering; you need to chase down the best rates. There are plenty of comparison websites available which can help you find the best rates.

But don’t leave it too long. If you order ahead you get a much better rate, especially if rates continue falling, as many observers believe they will.

Use an overseas travel card

Cash exchange is not the only option, and that fat wad of notes might not be covered by travel insurance. Most of us use a card to pay these days, and you may be able to save by doing the same abroad – but you need to use the right card.

Using your regular debit card can be expensive, owing to the extra charges. A pre-loaded currency card might be a better idea – especially as banks are competing on the rates and deals for overseas use.

You may be able to beat the rates on cash with a specialist travel debit card, which offers fee-free spending overseas.

They offer the master card rate – the rate the banks give each other, and don’t add any fees on top. There are some credit cards that offer this too, but you’ll tend to pay interest on cash withdrawals on those, so it depends if you’re going to use mostly cash or card.

What next?

Britain’s departure from the EU is still to be negotiated, and sterling looks to stay low at least until it is.  Whatever you do to make the most of your holiday, you may need to look at its effect on your investments.

There are ways of profiting from volatile exchange markets, but most of us might prefer to leave these to the professionals. A better solution may be simply to remember that investments should be for the long term, and a well-diversified portfolio may be the best way to protect wealth against changing currency values and economic uncertainties.

To discuss foreign exchange, investment, diversification and the best way to make the most of your money this summer and beyond, simply call us at Continuum.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The Financial Conduct Authority does not regulate currency markets.