On 1st January 2013, the pound was at the joint highest level that it had been for the entirety of 2012. With £100, you would have been able to buy $163.
But just a few weeks on, the value of the pound has fallen rapidly against both the Dollar and the Euro. Falls in excess of 8% have hit sterling since the beginning of the year.
Like most other types of assets, currencies are traded by investors. And like the value of those assets, the price and value fluctuates based on the sentiments of those investors that are buying and selling that currency.
The UK’s economy still looks fragile. Economic growth has all but gone, and the country could be on the brink of a triple dip recession. Furthermore, the UK’s credit rating has been downgraded. This makes the UK appear a riskier place to put your money than before. As a result, some investors have sold their holdings of sterling, helping to drive the value of the currency down.
However, many UK investors in FTSE companies are set to benefit from the weakening of sterling. Stock market Investors in London’s FTSE 350 blue-chip index could see windfalls of £3bn. This is because the majority of the index’s biggest dividend paying companies, such as HSBC, pay their shareholders dividends in US dollars or euros.
If sterling remains at its current lows for the year, investors in blue chips could see a 7% increase in 2013 dividend returns on 2012. Investors in euro-paying dividend companies such as Unilever could see dividends rise as much as 17%.
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