Posted by Allison on 1 April 2009, 16:27
If you have any interest at all in exchange rates between different currencies, you cannot fail to have noticed perhaps the biggest news of all recently.
The pound has gone from being rather unstable to being in virtual freefall. It's strange how the space of a few months can make so much of a difference to one single currency.
Let's see what happened. A short time ago we were listening to stories about how a single pound could get you almost two dollars if you decided to go on holiday to America. And then came the warnings by a number of experts on the subject.
They thought we would soon be seeing a pound that was only capable of getting $1.50 a time. Now understandably the first thought of many people was that these 'experts' weren't perhaps quite so knowledgeable after all. Who could conceive a drop in value of as much as twenty five per cent?
But in the following weeks that is exactly what happened. And in fact even though the pound seemed to stall just short of that $1.50 level a couple of weeks ago, it didn't last long. In recent days it has dropped below it and registered $1.47.
A few short weeks ago, as we were still questioning the possibility of a pound that was only worth $1.50, these experts started to suggest that it could go even lower. Perhaps $1.25 wasn't out of the question? Now that is still a long way off, but in truth it suddenly doesn't seem quite so unlikely.
This is undoubtedly the weakest the pound has been for a very long time. We are in a recession in all but name; the data which will prove it is not in quite yet, but it won't be any surprise when it does finally arrive. Germany has already fallen into recession and it seems very likely that many other countries will officially follow suit very soon.
So how does this affect us?
Well it certainly doesn't make an American holiday a viable prospect in the near future. With the $2 exchange rate falling fast and currently hanging on around the $1.47 mark, that doesn't represent great value for money in anyone's book. There is a news article on this subject at http://www.timesonline.co.uk/tol/travel/news/article5001650.ece. But you don't need to be thinking about going abroad to feel the sting that the plummeting pound will bring you.
If you have ever taken advantage of a healthy exchange rate to buy goods from abroad – perhaps for Christmas or birthday presents for example – then you will know the benefits. You get goods at a far cheaper price.
But try and do the same now and you will be looking at a very different amount when you reach the checkout.
This may well harm American businesses too, but in truth while the internet is still the place to look for bargains, we will definitely be looking a bit closer to home for the foreseeable future.
In reality it could take several months – if not much longer – for the pound's value to climb back up again. One suspects the two dollar pound will be a thing of the past for a long time yet.