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.
Which? Money when you need it
You can follow @WhichMoney on Twitter to keep up-to-date with our Best Rates and Recommended Provider product and service reviews.
Sign up for the latest money news, best rates and recommended providers in your newsletter every Friday.
Or for money-saving tips, and news of how what’s going on in the world of finance affects you, join Melanie Dowding and James Daley for the Which? Money weekly money podcast
For daily consumer news, subscribe to the Which? news RSS feed here. And to find out how we work for you on money issues, visit our personal finance campaigns pages.