Fixing exchange rate maybe only way to avoid volatility trap

A seven month high in Sterling/Dollar and a five month high in the Sterling/Euro exchange rates may have offered short term good news for British holiday makers, but the currency markets continue to be extremely volatile according to the HiFX Global Currency Moves Report for May.

May delivered plenty of positive news for Sterling; hitting a five month high against the Euro (GBP/EUR 1.1557) and a seven month high against the Dollar (GBP/USD 1.6230) thanks to increased optimism surrounding the UK economy. However, the pound is also vulnerable to political news and, in a month which saw the British Government almost fall to its knees amid rumours that Gordon Brown would be forced to resign and MP's expenses scandals, Sterling also showed it's still susceptible to bad news and is therefore not out of the woods.

MONTH OF HIGHS

A month of a strong Pound has meant that British tourists heading abroad, especially to Europe or the US can expect their pound to stretch a little further than it has done in recent months.

The US dollar toppled the New Zealand dollar as the most volatile currency against Sterling, however, as GBP/USD rises up the table as the most volatile currency pair, it is clear that any improvements are not necessarily long lasting.

Such wild volatility can have a huge impact on anyone transferring larger amounts of money. For example, for anyone moving pounds to US dollars the difference between the high and the low of the month (i.e the best and the worst exchange rate over the month) would have been $29,560 on £200,000.

CANADIAN STABILITY

In contrast, GBP/CAD regained its place as the least volatile currency pair in the HIFX Global Currency Moves report. The strong Pound (buoyed by increasing confidence that the worst of the recession is over) was offset by a strong Canadian dollar (fuelled by a surge in crude oil prices). This lack of volatility will be particularly welcomed by the many British émigrés starting their new life across the Atlantic.

Mark Bodega, Director of currency specialists HiFX comments; "As UK PLC struggles to find signs of any green shoots, government ministers seemed more interested in saving their own skins and deposing Gordon Brown than worrying about the impact all this infighting would have on Sterling. Our monthly Global Currency Moves Report shows how volatile the pound continues to be. With so many factors affecting Sterling, it is nigh on impossible for holiday makers or British expats abroad to predict what is going to happen. The best way to make sure that you are getting the most bang for your buck is to think about your currency needs in advance. This could mean buying travel money online in advance to ensure best rates or seeking advice from a currency expert on when to execute larger transfers".