LONDON — The British pound is getting caught between the dollar’s surge and the euro’s slump, and its swings are shaking things up for business just as uncertainty grows over a potentially tight general election.
Caught in the crossfire of developments in the United States and the 19-country eurozone, the pound has dropped to a five-year low against the dollar but pushed to a seven-year high against the euro.
Against the dollar, it is trading below $1.50, its lowest since 2010, largely because of expectations that the Federal Reserve will start raising interest rates this year. Higher rates tend to bolster a currency’s value.
At the same time, the pound has perked up against the euro amid concerns over the eurozone economy that prompted the European Central Bank to launch a 1.1 trillion-euro government bond-buying stimulus program. The pound this month rose above 1.40 euro to the highest level against the euro since the end of 2007.
For British consumers, the impact is straightforward: It will make summer holidays in the eurozone, such as the beaches of Greece and Spain, cheaper than before. At the same time, it will make any shopping spree on Fifth Avenue more expensive.
On the whole, the British stand to gain as they travel more to Europe than they do to the U.S.
The pound’s gyrations may help households by delaying the moment U.K. borrowing rates start rising.
Because most British imports originate from the eurozone, the pound’s rise against the euro means inflation will be lower than expected.
