Author Ben Leonard
On Thursday evening, we went to bed with exit polls that sent ripples of shock across the country. The markets immediately reacted and the fallen pound weakened. Even at this point, many were arguing that the exit polls were wrong. But then, as night turned into day, it became more and more apparent that the exit polls were far from incorrect.
Mrs May hadn’t got the landslide victory that she had been hoping for. Far from it. And Labour had done much, much better than many had predicted, taking seats that had been Conservative for many years. Labour took Canterbury, for example, which had been Conservative since 1918. In another shock result, Labour took Kensington from the Conservatives.
But I digress. All of this resulted in one thing. We woke up to the hung parliament the exit polls had predicted.
Why do we have a fallen pound?
If there’s one thing that markets don’t like, it’s uncertainty.
On Monday, the pound hit a seven-month low against the euro to €1.1279. Against the dollar, it fell to $1.2648. To put this in perspective, the day before the EU referendum last June, £1 would buy you about €1.3048 and around $1.48.
According to a recent article in The Telegraph, the fallen pound, fell by an average of 2% against 158 global currencies, due to the shock general election result.
Add a hung parliament to the fact that it’s only days until the official Brexit negotiations are scheduled to start and you can begin to see why the markets are reacting the way they are. Some have even speculated that Theresa May could resign. Then there’s also the issue that it’s been reported that the Queen’s speech could be delayed.
With Mrs May unable to form a majority government, she is now set to meet the leader of the Democratic Unionist Party to try and get a deal that will allow the conservatives to govern.
Should I buy my holiday money now?
Even at the best of times, it’s difficult to predict exactly what will happen to the pound. Currency rates fluctuate all the time.
Although many experts have theories about what could happen, anyone who told you they knew for sure exactly the best time to buy your holiday money for your summer break, would be lying, especially in times as volatile as this when the fallen pound is at the top of everyone’s thoughts.
So what do you do?
Reserving your money
If you’ve got a holiday coming up, you can pre-order your currency ahead of time, to pick up within 14 days. Various companies allow you to do this, including Moneycorp and Travelex, for no charge. This way, you can lock in at today’s rate. This is good if the fallen pound dips further.
If the pounds strengthens against your chosen currency, many companies may allow you to cancel at no extra cost (always check the terms and conditions). You could then buy your currency on the day at the better rate.
Sainsbury’s also offers this service but it charges £10 to cancel and you can only order up to 8 days ahead.
In the past, it was possible to buy currency up to 60 days ahead and cancel at no cost but most bureaux have now changed this to a maximum of 14 days.
It’s also worth noting that you may be better off going for a big brand, as there may not be that much protection for your cash if something happens to one of these companies.
Half now, half later
You could buy half of your money now and half of it later.
This could help you to ‘hedge your bets’ against the pound getting stronger or weaker, as you head towards your holiday.
Specialist credit and debit cards
If you want to spend on a card abroad, you could secure the best rates and avoid paying fees (in various countries), by using cards such as the Halifax Clarity Mastercard or a debit card from Metro Bank.
Consider a pre-paid card
Pre-paid cards usually work by you loading them up before you travel. In this way, they allow you to lock in at today’s rate, so you shouldn’t have the worry about the rate fluctuating as your holiday approaches.
However, if the pound gets stronger, you may lose out.
Most pre-paid cards do not require a credit check, which might make them a better option for those with a poor credit rating.
No-one can predict exactly what is going to happen, especially amid the chaos of a hung parliament. There are just too many factors at play.
In essence, it comes down to how tight your holiday budget is. If you know that you can have the holiday you want with the rate the pound is currently at but would struggle to pay if the fallen pound dips further, then you may consider buying your currency now.
If you are happy that you have enough leeway in your budget that, if the pound weakened, your holiday wouldn’t be completely ruined, then you may want to wait and see if the pound strengthens again.
You could even ‘hedge your bets’ and buy half of your holiday spending money now and wait to buy the other half until later.
One thing is for sure though – don’t let hindsight about currency rate fluctuations ruin your fun in the sun. Even the experts don’t know what is going to happen.
Decide if you’re going to buy ahead or not (or a bit of both) and know that you made that decision with the best information available to you at the time.