Exchange rate: Why is the pound weakening?

The pound hit its two-year low against the dollar on the foreign exchange markets this week.

This is not good news for those going on vacation this summer. It could mean that their expenses are not going to go that far.

So why is the value of the pound falling? And who decides on its value?

How is the currency evaluated?

When people talk about the decline or the rise in the pound sterling, it means that it will buy more or less a foreign currency because the exchange rate has changed.

Very often, the pound is compared to the US dollar, given the size of the US economy.

It is also frequently compared to the euro, because of the close trading relationship between the UK and the European Union (EU), but can be compared to any other currency in the world.

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Today, most countries use what is known as a floating exchange rate, where the value depends on the number of people who want a certain currency at a given time.

The exchange rates are real, which means that they are constantly changing because they reflect the ever-changing demand for each country's currency in the world.

Why does the pound weaken?

The British pound hit a 30-month low of 1.2101 USD against the dollar earlier this week.

The value of the currency has also fallen against the euro, reaching 1.0881 euro at one time.

The pound was trading at just under US $ 1.50 against the US dollar before Britain decided to leave the EU in June 2016.

The value of the British pound continued to fall, with the government insisting that the UK is ready to leave the EU without agreement.

In a non-agreement scenario, the UK would leave the EU without any agreement on the "divorce" process.

Under new Prime Minister Boris Johnson, the government described an exit without agreement as "a very real prospect".

What's affecting the exchange rate?

The supply and demand for sterling determine the exchange rate of the pound.

If demand for sterling increases, its price will also increase.

This is affected by many factors, including:

• Economy: Strong economies have strong currencies because other countries want to invest in them. To do this, they need the local currency, which increases the demand and is worth it
• Savings: When UK banks raise their interest rates, holding savings or book investments becomes more attractive because you get more for your money. So the demand for pounds is increasing
• Prices: If British products are cheaper than those bought abroad, they will attract foreign companies that will need sterling to buy them. This will tend to increase the exchange rate
• Public finances: The state of the bank balance of a government or the amount of its debt can also affect the exchange rate
• Speculation: The exchange rate is very vulnerable to currency speculators, who buy and sell sterling based on expectations of future events

Much of the daily fluctuation in the exchange rate is due to speculators' actions and their confidence in the country's economic prospects.

How does the exchange rate affect me?

It depends largely on who you are.

Investors around the world are trading huge amounts of currency every day.

The rate at which they exchange currencies determines the rate that people get at the bank, at the post office or at the exchange offices.

A fall in the pound sterling can also affect household finances.

If the pound is worth less, the cost of imported products from overseas increases.

As the price of oil is in dollars, a lower pound could also make filling your car with gasoline more expensive.

But most people do not think about exchange rates as long as it is not time to exchange money for a vacation abroad.

So when is it better to buy money?

It's hard to predict how the value of the pound will change. It is therefore generally suggested to change half of your holiday money weeks before departure and the rest just before, in order to protect your bets.

Ordering currencies online in advance then collecting money in person can also guarantee you a better rate.

When will the pound come back?

Some badysts have said that the pound could fall again.

It has been suggested that euros and pounds could reach parity, with one euro valued at 1 euro.

"The pound could go down to $ 1,1650 against the dollar, its lowest in October 2017, as fears of a non-Brexit deal go up," said Fiona Cincotta, senior badyst Market at City Index.

"If the UK leaves the EU in a haphazard way, we could possibly consider parity with the dollar."

She added that in the case of a Brexit agreement being adopted and adopted by Parliament, it could, however, recover quickly.