We hear the terms almost on a daily basis 'the pound had gained in strength against the dollar' or 'the pound is at it's weakest for 5 years' - you know the kind of thing. But what does it actually mean for our holiday money; is a strong pound good or bad and do we get more currency or less?
A strong pound means more travel money
If you want to buy Australian dollars for example and the exchange rate is 1.80, you will get AU$1.80 for every £1.00 or AU$180 for every £100.00. If the rate went up to AU$1.90 to every pound then the pound has strengthened.
The more the pound gains in strength the more the exchange rate would increase and you would get more currency.
Similarly, exchange rates are affected by a weaker pound so a weak pound means less holiday money.
It all seems so simple
Actually it isn't quite as simple as that. The pound can be weak against one currency and strong against another! So it really depends on where you are travelling. The reason you hear about the pound against the US dollar so much is because the USD is the worlds major trading currency so it can affect goods and services as much as holiday money. You may hear doom and gloom about the GBP to USD rate but if you are going to Thailand for example you may get the best exchange rate ever if the pound is strong against the Thai baht. Get it?
Who sets the exchange rates anyway?
Well this can get complicated but quite simply most currencies in the World including the British pound are affected by supply and demand just like most other goods. Vast amounts of the world currencies are traded every day and if enough investors across the world fancy buying GBP then the pound will gain in strength the more demand there is for it. Political and economic events can encourage or put investors off buying a currency which is why it fluctuates and so does the amount of holiday money you will get on any given day. The Bank of England have a great little explanatory video on the subject.
Ultimately, currency exchange rates offered to the general public are set by the foreign exchange companies that sell it and that is based on the wholesale price they paid for it – just like bananas or shoes.
There is no good way of predicting exchange rates, certainly not for most of us that are not experts in any way, but what we can do to help at Compare Holiday Money is always show you who is offering the best rates at the time when you come to buy your currency, now that is quite simple!