Gino Ravaioli, chairman of the DCC Forum.
With summer approaching, the pound’s volatility becomes more apparent and concerning for holidaymakers who are planning their trips for the holiday season.
It is generally agreed that the Brexit referendum has been a significant driver of ongoing volatility in the UK economy since the result in 2016. Even now, three years on, the UK’s political climate can’t be described as anything short of stormy, with a heated leadership contest the latest challenge faced by an already fractured Conservative Party. Theresa May’s resignation last month brought into sharp focus the extent to which politics can have a lasting effect on the nation’s financial state – particularly to the value of our currency.
In a recent BBC News report it was revealed that the British pound dipped to its lowest level for the last five months. On 22 May the pound fell below $1.27 against the US dollar. On the same day, the pound’s value also dropped against the euro. The BBC reported that “Brexit uncertainty and the US-China trade war have both contributed to the pound's recent fall.”
Meanwhile, an article published by the Guardian highlighted that inflation rates are beginning to rise in the UK and house price growth across the country has slowed. This news isn’t wholly unexpected, as it aligns with the rising concerns of a no-deal Brexit and the race to find a new Tory leader. Neil Wilson, chief market analyst at Markets.com, remarks on this: “The EU says it won’t renegotiate (it may have to), MPs won’t accept the existing deal, and Parliament has limited scope to stop this train. Sterling is increasingly reflecting the no-deal risk."
With summer approaching, the pound’s volatility becomes more apparent and concerning for holidaymakers who are planning their trips for the holiday season. For one, the unpredictability of the pound’s value makes choosing a destination more confusing for holidaymakers – particularly when considering which country could be the best value for money. That paired with the difficulty we are experiencing with leaving the EU could jointly be pushing British holidaymakers to venture further afield to non-eurozone countries – such as Turkey, Tunisia or Bulgaria. A forecast of this nature was published in HuffPost recently, illustrated by data from Thomas Cook that showed half (48%) of all holidays booked so far this year were to non-euro countries.
If this forecast proves to be true for the rest of the year, holidaymakers may avoid exchanging cash before they jet off, for fear of a bad rate caused. Instead they may opt to use their card for payments during their trip. Some may even experience a price-shock when the reality of the fluctuating exchange rate impacts the cost of items abroad – creating a mismatch between their original expectations or budgets.
In light of this, holidaymakers should take steps to become familiar with the state of sterling against the local currency of the destination they are travelling to. The fluctuating pound could cause even the most careful spender to go over budget. Whilst it might not be in the holiday spirit, taking extra care to track spending when visiting another country have never been more important.
Another consideration for holidaymakers are the payment options available to them when making purchases abroad. In the case of card payments, holidaymakers can opt to pay in their home currency. This method calculates the exchange rate at the point of purchase, includes all fees, and critically means that what the cardholder sees at point of purchase is what appears on their bank statement – all in a currency they are familiar with. This can be invaluable in terms of spend-tracking when travelling. The alternative option is to complete the payment in the local currency; however, in this case the additional fees from the card issuer and bank remain unknown – as is the exchange rate. These factors will only come to light when they appear on the bank statement a few days later. This makes it more challenging to determine precisely what the final purchase amount might be.
Retailers too should consider the situation facing tourists and recognise the benefits of offering their customers options at the point of sale. In doing so they are putting the choice back in the hands of the consumer who can select the method that best suits them. This will ultimately provide visitors with a more transparent, shopping experience – with budgeting and spend clarity being less of a worry.
Gino is the chairman of the DCC Forum. He joined Global Blue in Italy in June 1998. At that time he started as Finance Manager of the Italian subsidiary. In 2006 he took the responsibility of Product Currency Choice joining the Group Management Team working on developing the Currency Choice business worldwide. Since 2015 he has been responsible of developing the company's new products and strategic business partnerships. Gino left Global Blue in April 2016 to start an independent onsultancy activity in the payment area.
