by Simon Hilton, senior foreign exchange consultant at World First and official Expat Focus foreign exchange partner
In the past few months, we’ve seen the strength of the US dollar take a bit of a tumble. At the start of July, USD was up at 0.671 against GBP, but in recent weeks, we’ve seen it fall below 0.61. And it’s not just the pound against which we’ve seen the US dollar struggle, having also lost ground to the Euro and Australian dollar (AUD), amongst others.
Add to that the political deadlock which brought about a US government shutdown, and it’s certainly been an unsettled picture. About 800,000 federal workers in America were told not to go to work while museums, national parks, services and government buildings remained shut in the wake of a lack of consensus over the US budget and the debt ceiling.So what has this meant for the US dollar? Well, a temporary lack of credibility and a loss of confidence in USD has ensued, creating a feeling of uncertainty and wariness amongst potential investors, which, in some cases, has actually deterred them from investing.
The big worry was that the government would default on its debt, the spectre of which frightened – amongst others – the real estate market, where transactions were cancelled and people were unable to get loans. Had a default occurred, this would have led to great economic uncertainty, and US government bonds would have appeared much less attractive to investors. Interest rates would have risen, and therefore economic activity would have slowed.
With the near-term risk of a sovereign default now gone, we now turn our attention to the extent to which the shutdown has damaged the US economy. The ratings agency Standard & Poor’s say the shutdown has probably taken 0.6% off annualised GDP, equivalent to around $25bn. Going forward, confidence will be the key to future spending. And should the value of the dollar continue to fall as we’ve seen over the past few months, then this will have an effect on UK expats living in America.
For example, if they want to send money back home, whether they’re paying a mortgage, sending wages to a home account or supporting family members, they’ll get fewer pounds for their dollars. At the start of July, $5000 would have got you around £3,350, but by the start of October, this had fallen to around £3,080. The question UK expats are asking is – how much further will it fall?
This is an example of how currency exchange rates can really affect expats. If you’re working abroad and sending money home, retiring overseas and transferring your pension, or making any sort of currency transfer, a country’s political situation is just one of the things that can affect how much you get. Interest rates, inflation rates and government intervention are also factors in influencing the strength of a country’s currency against another.
With so many factors playing a part in deciding how much you’ll get, the way you handle your foreign exchange transfer is all-important. It could be worth hundreds or even thousands of pounds, so it’s definitely worth giving some serious thought to. You can also keep up to date with the very latest market updates and rate alert services from our chief economist, Jeremy Cook.
Simon Hilton is a senior foreign exchange consultant at World First specialising in assisting private clients and companies with their foreign exchange transactions. Simon is authorised by the FSA to offer foreign currency options. Contact Simon today for a free, no-obligation currency transfer quote.
World First transacted over £4.7bn for their 40,000 clients in 2012 and have a 2A1 credit rating from Dun & Bradstreet – the highest possible rating for a company their size. As well as tailored hedging solutions designed to protect you from adverse market movements, they also offer excellent service. Winner of the Client Focus Award at the 2012 National Business Awards, they provide personal service with a dedicated dealer, and a regular transfer service, which is perfect for mortgage or rental payments.