4: Dollar Exchange Rate from 2006
This rather more detailed graph picks up the story from the start of 2006. A combination of a strengthening dollar and a weakening pound saw the dollar rate fall through 2005 from a peak of about $1.93, and it began 2006 at only $1.73. But in the spring of 2006, the dollar weakened dramatically.
In the space of only a few weeks, the rate had jumped from $1.75 to just short $1.90, and the rise continued.
Towards the end of 2006 it was rapidly heading back to the $2 region but only made it to $1.98 before falling back and seeing-in 2007 at $1.96.
However, in April of 2007, the dollar weakened to over $2 and, although it fell back a little over the following month or two, by the end of June it had driven through $2, reaching just over $2.06 on 27th July - the highest it has been since 1981. Although it has dropped under $2 for a few days since, the pound/dollar rate has continued to be over $2 for the best part of six months, and on 9th November, 2007, it reached $2.11.
This rise couldn't be sustained, and the very things that had hit the American economy, such as the "sub-prime" loan crisis, started to affect the UK. The pound weakened a little, and early 2008 saw the rate hovering around $1.95-$1.98 mark, with a little peak just over $2.00 in March, 2008.
However, the ongoing financial uncertainties saw the rate drop rapidly from $2 in July, 2008, to around $1.75 two months later. Although it recovered a little, it fell some 10% over just a few days as the financial situation worsened, reaching $1.47 in mid-November, 2008, and continuing to hover around the $1.50 mark to the end of the year.
2009 began with the financial "crisis" worsening, and the pressure on the pound conitnued to push it downwards, and the closing value on on 21st January, 2009 was £1=$1.41 which is the lowest since June, 2001.
It is important to note that the rates given here and on the other related pages are the inter-bank rates. These are not the rates that you or or I would get when buying dollars ahead of our holidays, or the rates applied to dollar purchases on our credit cards, or indeed the rates necessarily quoted by the media.
Apart from commission (clear, in the form of a percentage, or hidden, as a reduced exchange rate), the rates you will get are always several percent lower, and usually lag behind the inter-bank rate.
But to give a rough idea of what difference all this makes to your holiday cash, a change in rate of 1c from, say, $1.97 to $1.98 will result in a saving of about £2.56 for each $1000 you spend. However, if the dollar is much lower, a change in rate of 1c from, say, $1.77 to $1.78 will result in a saving of £3.17 on each $1000 - whereas the drop during October, 2008, would have seen $1000 costing about £100 more.