Keep your head above water as sterling dives

Holidaymakers and investors aren't completely at the mercy of the falling pound, says Kate Hughes

( BARBARA WALTON/EPA)

The plummeting pound is setting nerves twitching in the City, but the slide against the euro and US dollar has wider implications for the rest of us, and they're not all bad.

The value of sterling against the euro is now at its lowest level since the single currency was created in 1999. And it's a similar story across the pond, with the pound hovering as low as $1.49, against more than $2 earlier in the year. The price is being pushed down because of fears about the state of the national and global economy. In the UK there is concern over government finances and the chances of a deeper recession here than elsewhere. Globally the focus is on the "safe" currencies, particularly the dollar, which is also "squeezing out" the pound, currency analysts suggest.

For people who live or own properties overseas, or have a holiday planned, there are big implications. Millions of people will either be going away for Christmas or taking a break early in the new year, and they will certainly feel the difference in their wallets.

Almost 20 per cent of UK holidaymakers are concerned about the effect of the weakening exchange rate on their holiday, according to Greenbee, the financial services arm of retailer John Lewis – and with good reason. America has often been associated with a bargain, but these days £50 will only give you $74 to spend, compared to more than $100 at the end of last year. On the Continent, your £50 will now give you less than €56 – down from a high of over €72 last December. In fact, changing £200 at Birmingham airport will only get travellers €199 after charges – less than €1 for £1, reports currency trader FairFX.com, and other regional airports are expected to follow suit.

"This is because the airports have long taken advantage of travellers who leave buying their holiday cash to the last minute by offering far worse rates," says Stephen Heath, chief executive of FairFX.com. "Brits planning a skiing holiday in the new year, for example, might want to buy half their euros now at today's rates to limit the pain should sterling fall further, and the rest before they depart, just in case sterling should improve." Customers could also consider buying their cash through a currency broker, and even a straightforward prepaid travel card could fix, or lock in, the exchange rate for up to six months.

The FairFX prepaid euro currency card ( www.fairfx.com) will cost you £2.50 a month in membership and £1.12 every time you withdraw cash anywhere in the world, but the exchange rate is one of the best on the market, so would particularly suit those taking out large amounts of cash at a time.

For expats, the situation is more challenging. Some 1.2 million British pensioners live overseas and draw their pensions either in sterling or via a direct conversion to the local currency. They are receiving the same number of pounds but less of the foreign currency, leaving them struggling.

But it is better news for British property sellers, and prospective buyers can use this to their own advantage. "In just over a year, a European property priced at €200,000 has become worth £36,741.45 more to a British seller due to fluctuating exchange rates," says Mark Bodega of currency trader HiFX. "With housing markets across Europe in a bruised state, prospective British buyers can use current exchange rates to ensure they get a great deal.

"Most buyers work to a budget and changes in the rate have led to people reviewing what properties they can afford. A drop in demand will mean vendors are also feeling the pinch, so there is more room to negotiate."

Meanwhile, unless you want to get involved in the complex world of spread betting, one of the only other ways to gain from the volatility of the pound is to invest in America and the eurozone. "The beauty of factoring in currency fluctuations when deciding to invest in a foreign stock market is that you could end up getting a double hit through rising share prices bought in a weakening currency," says Darius McDermott of independent financial adviser Chelsea Financial Services. "Consider a fund that invests in foreign companies. Your return will depend on what happens to the price of that fund in its home market and what happens when those foreign profits or losses are converted back to pounds."