Five Questions On: Sterling

Raheem Sterling? He didn't perform as well against Uruguay as he did against Italy, did he?

Forget the World Cup, this is about the currency. Sterling reached a five-year high against the dollar and a 20-month high against the euro this week.

So what?

That's good news for anyone planning an overseas holiday soon – you'll get more foreign currency for your pound. You'll receive 9 per cent more against the euro compared with last summer and 13 per cent more against the dollar. So if you're changing £500, that's another €50 or $105 to spend. The pound is also up by almost 29 per cent against the Indonesian rupiah and 20 per cent against the Jamaican dollar. It's also good news if you're thinking of buying a property in the US or Europe.

So should I rush to snap up my holiday money now?

That could prove to be a good move, but it obviously depends on what happens before you travel.

What will happen?

No one knows. The pound could get stronger if there are further indications from the Bank of England of an early rise in interest rates. That pleases the foreign exchange market as higher interest rates mean better returns for investors in the currency. That leads them to buy more, which, in turn, pushes up the price. Sterling has also been helped by euro interest rates being cut. However, if the US announces an impending rate hike, that would benefit the dollar and knock the pound.

So rates could rise or fall?

In a word, yes. But rather than waiting for an even better rate, you could buy foreign currency now in the knowledge that you're securing the best deal for a long while. You could also lock in today's rates, in effect, by buying a prepaid currency card to use later. Things could improve but currency markets are very fickle and sterling could quickly slip out of favour.