Updated May 2012: Foreign Currency – US Dollar to Weaken

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At the end of 2009 we published an article (reprinted below) about how we expected the US Dollar to weaken. Since then a lot has happened globally and the problems within the Eurozone has most recently overshadowed most of the global financial news.

So what happened?

During 2009 the US Congress approved President Obama Economic Stimulus Package worth about three quarters of a trillion dollars. One third went into tax cuts, one third into social security in the form of unemployment benefits, health care and education and the final third went into job creation. This money was intended to be spent over ten years but most of it being spent in the first three years and the rest tailing off in the seven years to follow.

What this meant for the US economy was that where the UK contracted by 1.5% the US dipped by 2.6% in 2009 and grew by 2.6% in 2010 leaving it flat against predictions that suggested a contractions of 3%-5% per year.

When we wrote our original article the exchange rate stood at £1=$1.49 and over the next six months it did weaken to the point where £1 bought $1.62.

Where do we stand right now?

The US Dollar strengthened at the beginning of 2012 as many multinational companies tried to take their money out of the Eurozone and invested it in Dollars and US stocks instead. Since then the US Dollar has slipped back at little to $1.62 but this is in line with the market uncertainty caused by the whole Euro crisis.

So what is going to happen next?

If we knew that we would be extremely rich but what is possible is that with the Greek populace failing to form a government, France posturing over a rejection of austerity and further problems in Spanish banks is that more money will try and leave Europe and head to what are seen as safer havens.

What does this mean if I am planning to go to America this year?

We cannot tell you when to buy your USD Dollars and any predictions of what an exchange rate is going to do is purely speculation but as the UK is so much closer economically to the Eurozone than America is, any further weakening of the Euro can only make the USD Dollar more expensive for the British Tourist. In the longer term I would say that every crisis provides someone with an opportunity and money leaving Europe now will probably find its own way back as soon as the markets spot the opportunities. I imagine that any losses or gains will be relatively short lived and I personally would not rush out and buy Dollars unless I was planning a trip within the next few weeks.

Below we have reprinted the original article as a reference.

Foreign Currency – US Dollar to Weaken

With the combined pressure of it’s own internal economic problems, the wider global economic crisis and now financial problems in Dubai, the US dollar is starting to look weaker than it has been for some time. It’s a foreign currency that many countries hold reserves in, and one that is highly sought after by much smaller and weaker economies, but this might not always be the case in the future.

Watching Foreign Currencies

The US dollar is one of the most-watched foreign currencies because of the sheer impact that a crash of the currency would have across the globe. The USA is in an extremely difficult economic and political position, caused in great part by the huge banking crises of 2008 and 2009, and although Barack Obama has a great deal of support both internally and externally, some of the toughest decisions on raising cash are just too difficult for any President, no matter how popular, to implement. In the short term, observers and commentators believe that the USA’s only option when it comes to raising more money, is to print more dollars. This in itself intrinsically weakens the currency, which will in turn mean that other countries can compete for imports and exports – especially those countries with rapidly-growing economies like China and India. It’s always worth keeping a watch on what’s happening with major foreign currencies like the US dollar – particularly if you’re a regular traveller to the USA, or you make regular payments there.

Impact of Foreign Currency Changes

The results of a weaker foreign currency like the US dollar will be seen across the world. Other currencies may strengthen, making their home country, and their products a more attractive investment opportunity. As goods and services will be comparatively cheap in the USA, the country will attract more visitors, who will buy from US stores rather than at home. This may sound good, but a less valuable dollar will mean that the same goods and services actually become more expensive for US citizens – used to cheap fuel, food and other goods. In addition, those countries which holds the biggest reserves of US dollars, particularly China, will be looking for a return on their investment, and if they see the US dollar weakening, may even consider selling their foreign currency holdings and looking elsewhere.

Foreign Currency at Compare Holiday Money

Fortunately for our customers, a weaker US dollar is good news for UK travellers. Whilst not at the 2:1 exchange rate that has been seen in the past, you can still get well over a dollar and a half for one pound Sterling, and even more than that if you buy ahead of time. If you’re travelling to the USA next year, or making monthly payments across the Atlantic, keep an eye on this particular foreign currency and buy through us at the time that’s right for you.

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Posted by Peter Rudin-Burgess

Peter Rudin-Burgess

Peter is one of the founding partners for both Compare Holiday Money and Currency Buy Back. He regularly blogs on financial matters and writes content for a number of blogs in the travel industry.

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