Pound bounces back against the dollar Sterling effort is good news for holiday makers

05 August 2009

Holiday money

With a weaker dollar, an iPod nano is cheaper in the US

The pound has reached a 10 month high against the US dollar, having broken the $1.70 barrier for the first time since October 2008. 

In the intervening months the value of sterling dropped to below $1.38, making travel money for trips to the USA far more expensive than it was when £1 bought $2. For holiday makers, $500 would cost £60 less now than it did as recently as April, when the average high street exchange rate was around £1 for $1.40. 

Road to recovery

The pound's recovery has been put down to several factors, including an upturn in the UK's manufacturing base, which is now increasing output for the first time in 16 months, and reports that house prices are rising. Better than expected news from the beleaguered banking sector, most notably from Barclays and HSBC, has also led to more bullish confidence among some financial analysts. 

By contrast, gradually improving investor optimism has prompted a move away from the dollar, which is traditionally seen as the 'safe haven' currency, in favour of the more risky, yet still stable pound.    

Optimists in the City maintain that rising confidence in the pound is an indication that the recession is lifting. More conservative traders believe that the surge in sterling is a blip that will correct itself should the Bank of England extend quantitative easing at tomorrow's monthly meeting of the Bank of England's Monetary Policy Committee. Quantitative easing is where the government buys up financial assets, such as gilts and corporate bonds, in order to release more money into the economy.

Good news for eurozone travellers

The pound has also improved against the euro, touching 1.18 euros at 9.30 this morning, although high street bureaux de change are lagging behind at around 1.13 euros to the pound. Just eight months ago sterling looked certain to hit parity with the euro. 

pound coins

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