Pound to dollar rate drops to its lowest level since January!

Kate Anderson takes a look at what’s been happening to the pound to dollar rate – and what the changes could mean for your finances.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Stack of British pound coins falling on list of share prices

Image source: Getty Images

At the end of September, the pound to dollar rate dropped to its lowest level since January! Worries about stagflation and supply chain issues drove the pound down to just $1.35 against the dollar.

But what does this mean for you and your money? I break down what is happening to the pound to dollar rate – and how this could impact your finances.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!


What is happening to the pound to dollar rate?

Sterling dropped to an eight-month low at the end of September. The markets got spooked (and we’re not talking about Halloween) by the big bad wolf – stagflation.

Stagflation is a term coined to describe a situation when prices and wages are on the rise but the economy remains sluggish. It comes as energy prices are surging and the UK faces a supply chain crisis.

Yet, it’s not only what’s happening in the UK that matters. Over in the US, the US Federal Reserve has hinted that it’s close to moving away from ultra-low rate and multi-billion dollar bond purchasing policies of late. And there has been a rise in US Treasury Yields, which helped attract investors to the dollar.

The pound has recovered some ground since the end of September, but investors are hedging their bets that there will be a further drop in the coming months.

What impact will this have?

Most of us don’t think about exchange rates until we head on holiday. But in fact, what’s happening with the pound to dollar rate can have an impact on your personal finances.

Firstly, when the pound weakens, the FTSE 100 actually tends to rise. This is because a large portion of the FTSE 100’s revenues come from overseas – in dollars.

So when the pound falls against the dollar, the dollar earnings can buy more pounds when exchanged back into sterling. This makes those revenues more valuable.

However, a weak pound is damaging for UK importers and manufacturers. And it can hurt those pesky supply chains we keep hearing about, as their purchasing power is reduced. This pushes inflation higher, making goods more expensive.


What does it mean for your investments?

It’s worth noting that the currency markets are quite volatile. FX trading carries quite a high risk because of how quickly things can change.

It’s interesting to know what’s happening with the pound to dollar rate in order to get a handle on how the economy is performing. But that doesn’t mean you instantly need to make financial decisions based on whether or not the pound has weakened.

The pound tends to underperform when markets are rocky. So it gives an indication of what is happening with investor sentiment. As a result, it tells you whether you need to do anything about your own investment portfolio.

Having said that, it’s usually better to invest with a long-term mindset. So only commit money that you won’t need in the next three to five years. This is because all investment carries risk, and previous performance does not guarantee future returns.

Generally speaking, having a well-diversified portfolio (geographically speaking) will insulate your money from currency movements.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »