Pound hits 19-month high

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Britain's economy remains fragile, but it looks to have escaped a double dip recession and our currency has finally dusted itself off and climbed to a 19-month high. Of the major currencies it has been the proud pound that has been leading the way so far this year.

With the pound stronger than at any time since August 2010, is now the time to stock up on euros for your summer holiday?
On Thursday, each £1 was worth €1.22. The last time sterling was at that level was in mid-2010. Not quite ancient history, but there are signs that the pound is finally emerging from a long period of relative weakness. Against the dollar, it is back through $1.60 and against the yen, the pound has advanced by almost 10% so far this year.

Investors spooked by euro
There are numerous explanations for this more buoyant performance: the pound is very competitive, many sovereign wealth funds and rich people are still spooked by the euro and regard UK assets (such as London property and gilts i.e. government bonds) as safe havens, and the economy appears to have avoided sliding back into recession.

In another boost to the pound, the chances of more monetary easing in Britain are receding, with the Bank of England visibly more concerned about rising inflation. Paul Tucker, deputy head of the Bank, said this week that inflation might stay above 3% this year. And quantitative easing has lost its biggest sponsor: Adam Posen, who had been voting for more money to be pumped into the economy at almost every meeting since October 2010, backed no change this month.

Michael Derks, chief strategist at FxPro, said other major currencies such as the Japanese yen, the Australian dollar and the Swiss franc are regarded as being very expensive, so it is little wonder that sterling is on the radar of money managers. "Looking ahead, these sources of demand are likely to remain evident for some time to come. The message for a while now has been 'do not underestimate the pound'."

While the more organised among us will have booked our summer breaks already, many of us leave getting our holiday money until the last minute. But with the pound so strong this week, should we be snapping up our euros now, while the going is good?

Not necessarily, says Alex Lawson, senior broker at the foreign exchange specialists Moneycorp.

'Good chance pound could rise further'
He argues: "There's a good chance that the pound could rise further against the euro over the next month or two, which will help people's summer holiday money go further.

"But this is less down to any great inherent strength in sterling, and more due to the continued weakness of the euro. While a temporary and uneasy truce has been declared in the eurozone debt crisis, the single currency is still looking fragile - and could easily fall further. If you have the cash available, now is a good time to buy your holiday euros. But there could be an even better time just down the line."

If you want to hedge your bets, buy some of your holiday euros now, and get the rest closer to your departure. "That way you'll get some at a good rate - and may get the rest at a brilliant rate," says Lawson.

Veteran City commentator David Buik, a consultant at BGC Partners, tweeted: "Surely there is more to go for! Europe is deep in the mire! There is always intervention - Heaven forbid!"
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