As sterling tumbles to record lows it can pay to be in dollars, yen or lira

INVESTORS are rushing to exchange sterling for “safer” currencies after it plunged to new depths. 

Sterling hit record lows against the euro — falling to €1.22 — and a six-year low against the dollar, trading at less than $1.53 on Friday. 

The decline follows publication of data showing that Britain’s gross domestic product (GDP) contracted by 0.5% in the third quarter, stoking fears that the country was about to enter a deep recession. 

The pound has now dropped more than 27% against the dollar since a peak of $2.11 last November. Against the yen, sterling dived as far as 139.12 yen — its weakest since 1995. 

The foreign-exchange firm Caxton FX reported a 438% surge in the number of exchanges from sterling into other currencies last week, mainly into yen, Swiss francs and US dollars. The average transaction size was £235,000. 

The torrid time for the pound means Britons holidaying overseas are feeling the pinch. 

Anthony Rice at the currency specialist Travelex said: “In real terms, this falling pound means shoppers in the US will, on average, pay 25% more for a pair of shoes than at the beginning of the year.” 

Here we look at ways to shield yourself — and profit from — the currency volatility. 

Ali Hussain 

From The Sunday Times

October 26, 2008