Pound at 30-Year Low Against the Dollar
British people who head for a recreational trip across the Atlantic might be in for an unpleasant surprise as the pound keeps tumbling against the USA dollar.
Sterling is now trading at $1.42 which is down around 17% since the time it reached above $1.71 during the summer of 2014. The steep pullback has basically made everything ranging from hotel accommodation and food to car rentals and museum tickets considerably more expensive for British holiday makers travelling to the USA. The rising dollar essentially means that British travelers will see their pounds worth less in the United States. Someone exchanging £500 today would get just $710 compared with $841 in mid-2014 – a considerable difference of $131!
Also, the biggest cost hike might not be £500 holiday to New York. Most UK imports are bought in USD and this would include most commodities (e.g. metals, certain crops) and almost every single line of clothing. When these goods and consumables start increasing, people will start feeling the pinch nearer to home.
The dollar has strengthened by expectations that interest rates in the United States will continue rising. But market analysts warn that worse might yet to come and the pound might hit a 30-year low of $1.30 especially with the EU referendum uncertainties on whether the UK will remain part of the EU. Interest rates are at 30+ year lows however with rates being at just 0.5%. A minor upwards shift in interest rates could help support the Pound Sterling although this would of course also increase interest payments on the UK’s massive National Debt.
A weak Pound/USD rate would not be all-negative however. A weak Sterling would help boost British factory exports – items ranging from cars to Scotch whisky would be cheaper for USA consumers and a weak currency would also help the tourism industry.
The pound hit $1.30 in 1985 when Ronald Reagon was USA President and Margaret Thatcher was British Prime Minister.