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Time to change your Easter holiday currency?

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The pound has leapt higher today on news that Theresa May appears to have secured some concessions from the European Union on the Northern Ireland backstop. Should holidaymakers be changing their currency today?

In an uncertain climate, there are a few points that can be made: The first is that sterling continues to bear the brunt of all Brexit related uncertainty and its value versus the Dollar and the Euro is lower than the UK’s economic strength would suggest.

Mark Barnett, head of UK Equities at Invesco, said: “The value of sterling continues to act as a barometer for the market’s confidence around Brexit. Despite some gains seen in the opening weeks of the new year, the pound remains significantly below purchasing power parity versus the dollar.”

At the same time, while the UK’s economy has weakened, it has not slumped. Today’s GDP growth data gives some cause for optimism and the all-important service sector posted a solid recovery in February after hitting lows in January. Areas such as construction and car manufacturing have shown real weakness but make up relatively small parts of the economy.

In normal circumstances, this economic strength would have translated into a stronger currency, particularly against the Euro. The Eurozone economy is weakening, with countries such as Germany caught in the cross-fire of the US/China trade war.

Looming Brexit

However, Brexit casts a long shadow. If there were to be some kind of deal, even if it is Theresa May’s deal, it would boost sterling. Currency markets fear a ‘no deal’ outcome. While some element of a no deal is priced in – because the market rallies every time a no deal becomes less likely – the currency would almost certainly sink lower.

As such, anyone deciding whether to change currency now needs to take a view on the outcome of Brexit, which is pretty much impossible. Holidaymakers could do half now and half later, so they don’t miss out in either scenario. Alternatively, certain currency sites allow you to set a price today to exchange in future, though there will be a small cost to this. This can be structured as one transaction or a series of transactions. It can be worth it for peace of mind.

The best defence is simply to secure the best rate possible. That usually means avoiding your bank, and using a specialist currency service, such as those provided by IG Index, International FX or Hargreaves Lansdown. Currency apps, such as Revolut, are another alternative, where currency can be changed at the spot rate. Credit cards are usually a poor option.

Ultimately, there remains considerable uncertainty around the UK currency. Any resolution of the Brexit ‘problem’ would see sterling spike higher and allow holidaymakers a bumper cash pot, but no deal remains a real risk. For those who would rather sleep at night, it may be worth taking action.

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