If you have paid any attention to the news in recent months and beyond, or even holidayed abroad, you will probably know about the weak pound. It has been losing value for a while against other currencies. How this effects us all differs naturally. Moolr took a look at how a weak pound may effect you.
That largely depends on the individual involved. Investors globally trade huge amounts of foreign currency every day. The rate at which they swap currencies determines what rate people get at the bank, post office or exchange shops.
A fall in sterling can affect household finances too. If the pound is worth less, the cost of imported goods from overseas goes up. As your petrol is priced in dollars, the price at the pump could go up too. But let’s be honest, when we most think about exchange rates is when we have an upcoming holiday. and then a weak pound can make your holiday far more expensive.
The other uncertainty is when to buy your currency. It is difficult if not near-impossible to predict future trends in sterling.
Some analysts have said that the pound could suffer a further fall. They predict that euros and pounds could reach parity, where one £1 could be valued at €1. What could make this more likely is the UK leaving the UK without a deal. However, if a deal can be pushed through parliament, then it is likely to recover, at least in the short-term.
Foreign buyers need less currency to buy the same quantity of UK goods. Therefore a weak pound means UK exporters can sell their goods cheaper and/or increase their profit margins. However, the benefits of a weaker Pound depend on demand elsewhere in the world. For importers too, the situation is of course rather different. More than anything, businesses that import and export demand stability, and the uncertainty in the UK is not helpful to most.
Currency movements in either direction have consequences. If a currency is too weak, then you have an oversupply of money and fast inflationary growth. If it is too strong you have an under supply and slow but steady growth. An oversupply of money reduces the value of a currency and leads to an inflated economy as interest rates are too low and the money is cheap and abundant.