British graduate Alexander Troop has the Bank of England to thank for making his last vacation before starting work a memorable one.
The 24-year-old trainee lawyer joins an upswell of holiday makers taking advantage of a surge in the pound as higher U.K. interest rates loom. Sterling’s near the strongest level since 2007 versus the euro and has climbed against every major currency this year except the Swiss franc.
“I chose mainly to stick to euro-zone countries and avoid Switzerland, which has a very strong currency,” Troop said from Ljubljana, Slovenia’s capital, where he’s in the final stages of a six-week backpacking trip. “I’ve been dining out more and drinking more because everything seems to be such good value. My two-euro beer here costs me less than a third what it would in London.”
Traders will get a hint as to whether they’re pricing the U.K. currency correctly Thursday, when the BOE publishes a raft of data including its latest rate decision, details of officials’ votes and new economic forecasts. That will be followed by a press conference with Governor Mark Carney.
The pound’s surge means British vacationers see their money go further when visiting countries as diverse as Australia, Brazil and Canada. Buying 100 euros ($109) now costs less than 70 pounds, compared with about 80 pounds this time last year.
Britons are responding by spending more: taking skiing holidays instead of trips to the Mediterranean, booking all- inclusive packages rather than paying as they go and stocking up on souvenirs from Swiss chocolate to cuckoo clocks.
Sterling is being driven higher by speculation the U.K. will be the second major economy after the U.S. to raise interest rates. And the gains look set to continue, with traders paying more for options to hedge against further advances.
The stronger pound contributed to a 4 percent jump in overseas vacations this year compared with the same period in 2014, the first increase in five years, according to the Association of British Travel Agents, the main industry body.
Sterling’s gains led Tom Overing, an insurer from Essex in the south of England, to splash out and book a winter vacation to the Austrian Alps for next year. He normally takes a cheaper holiday in the sun.
“A thousand pounds now buys me 1,400 euros, compared to 1,200 just a few months ago,” 25-year-old Overing said, adding that the exchange rate encouraged him to book extras including a day-trip to a ski resort and horse riding. “We’d have gone somewhere else if it wasn’t for this.”
The sharpness of the pound’s advance has prompted “panic buying” among travelers, said Rasika Dissanayake, a manager at Thomas Exchange Global Ltd., a chain of money changers that operates across London.
The company saw a 40 percent increase in currency transactions in July, when the pound peaked versus the euro, compared with a year earlier. Euro purchases represented 80 percent of total business, up from 70 percent last July.
Britain’s currency has jumped 11 percent against the euro this year, peaking at 69.36 pence last month. It’s also up more than 10 percent against Brazil’s real and the Canadian and Australian dollars.
Markets suggest further strength is in store, with the premium on options protecting against gains versus the euro reaching a three-year high of 1.4 percentage points in June, before slipping to 0.4 percentage point this week. While it costs more to hedge against the pound falling versus the dollar, the U.K. currency has climbed against its U.S. counterpart this year.
Ann Taylor from Newcastle said the strong pound made her “more relaxed” in her spending habits during a 10-day cruise on the Rhine river in July.
“It was just cheaper buying things,” the 60-year-old said last week after arriving at St. Pancras train station in London, carrying presents of Swiss chocolates and a cuckoo clock purchased in Cologne. “I can remember when the exchange rate was one-to-one against the dollar. It’s much better now.”
For Troop, who’s due to start work at a commercial law firm in central London in September, the pound’s advance couldn’t have come at a better time.
“The strength of the pound has certainly benefited me,” he said, just before setting off for Croatia, whose kuna slumped to an eight-year low versus sterling last month. “It’s definitely made me less careful in my spending habits.”
–With assistance from Lucy Meakin in London.
This article was written by Marianna Aragao from Bloomberg and was legally licensed through the NewsCred publisher network.