FAMILIES planning a holiday abroad this summer should begin thinking about buying their currency sooner rather than later, after a warning from Bank of England Governor Mervyn King that the pound is likely to slide in coming months, writes Teresa Hunter.
Quite how much is might slip and when is difficult to predict, given the challenges currently facing the economies of many of our most popular holiday destinations. The best guess is that it could well weaken against the euro, but the jury is out over dollars.
The pound has fallen by roughly 13% against the euro since last summer, with tourist rates reaching 1.3 euros to the pound on Friday. Most commentators expect that trend to continue.
The position vis-a-vis the dollar is more complex. It has been bouncing around $2.1 to $1.8 to the pound for the past year, with tourist rates now around the $1.9 mark.
In theory the pound should weaken against the dollar too, but as Mark Nancarrow, managing director of financial services at Thomas Cook, explains: "No one knows where everything is going to end where the US economy and the dollar is concerned. The pound has already fallen some way from its dollar high last year, which could mean that it might strengthen again or could fall further. But to an extent this uncertainty applies to other currencies too.
"All Mervyn King said was that standing where he is standing with all the data he has at hand at this precise point in time, his reading of the runes points to the pound weakening. What we don't know is what will happen in these other economies and to their currencies. Will they weaken alongside us or strengthen against us?"
For this reason he recommends hedging your bets and buying in tranches, but only use a holiday money service which charges no commission.
He argues: "If you are budgeting for your holiday and putting so much money aside each month, you could use this money to buy euros or dollars. If you buy so much per month then you are hopefully locking into good rates, before the pound falls, but minimising the risk that King could be wrong and sterling actually climbs before you travel."
This could be a particularly useful strategy where the dollar is concerned.
Nancarrow adds: "The dollar is currently volatile. We have seen it top $2 to the pound and fall back to $1.8. No one really understands where it is headed next. By buying regularly you hedge your bets."
He recommends that Egypt and Turkey are currently offering particularly good value for those yet to book their summer break in the sun, and says that their currencies have been relatively stable against the pound.
"Many people heading for these destinations buy all-inclusive packages, so currency is less of an issue. But if you are self-catering then I suggest you buy your currency now," he adds.