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Pounds Sterling

On a recent impromptu trip to the US, I borrowed about about £680 from a friend promising to repay on my return. I had aniticpated that amount would get me an equivalent of $1,000 since the blackmarket rate was just about N247 for a pound.  Typically, I like to travel cashless preferring to spend money via my foreign debit card or Nigerian debit cards but I was low on cash in my bank accounts, short on time to buy a BTA, I had no option but to go black market. Being an  unusual situation I had to improvise without having to loose much money.

 

On getting to the US, I approached the Bureau D’ Change only for me to learn that the pound exchanged for about 1.33 to the USD. That would fetch me about $904 (without deducting commissions) thus loosing about $96 (N15k). The pound was on a free fall and I didn’t even know it?? The British Pound is currently on its two year low trading officially at about $1.493 to £1 a figure that will surely be lower when you decide to purchase at a Bureau De Change.

 

What is the reason for this? The British Economy has taken a beaten since the Cameron led coalition government started its austerity programs hitting a double dip recession back in January. The floundering economy has left investors scampering away from the British Pounds helping it continue to dip against the dollar. The Bank of England’s (BOE) decision to also inject stimulus into the British Economy has also affected its value negatively even though by contrast the BOE believes a lower Pound will held balance the British Economy. Investors now expect an unprecedented triple dip recession…surely this are bad times for Britons.

 

What does this mean for you and I??

At the beginning of the year it cost (CBN rate) about N253.8 to buy a £1. As the March 7, 2013 it cost N234.4 a massive 7.65% in just under 70days. This may not seem much but considering that a buyer of £5,000 in January will have to spend above N1,269,000 compared to N1,172,000 (a N97,000 difference) is worth noting.

 

Travelers: For those who want to travel to the UK then now is also the best time to consider traveling. A cheap pound against the Naira means you have more money to spend on vacation and on business travel whenever you travel to the UK. You can start now to buy pounds knowing that the worst case scenario is that it will go lower, a better position to be than having to buy later if and when it does goes higher.

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Forex Traders: For those of us with loose cash and looking to earn some income from forex transactions, now may be the time to consider buying pounds. Holding positions agains the British Pounds puts one in a position to eke out some profits when the Pound regains its value. I expect the value of the pound to drop to about N220 to £1 before its starts ti rise again. It will surely get back to N250 by the turn of the year, a position I am sure the CBN may also want.

 

Small Businesses: For companies who conduct business with British Firms there is also an opportunity to hedge against future exchange rate rise. Those who purchase goods and services may want to secure a deal at the current dwindling pounds rates rather than wait till it rises again. This off course depends on your financial muscle and opportunity cost of hedging now. For those exporting goods and services to British Businesses inflow from he United Kingdom will surely result in a lower Net Naira inflow when converted. It maybe wise to hold now and convert when the rates go up. It may also be economically expedient to set off against expenses that are incurred in British Pounds.

Whatever your situation is a wise investor is also one who takes advantage of bad economic situations.

 

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