How to profit from the falling pound

By Lorna Bourke

LONDON (Citywire) - As the pound dropped to a record low against the euro on 1 September and has fallen to a two and a half year low against the dollar, currency investors are capitalising on this by trading heavily in GBP/USD. Some 86 percent of trades on Barclays Stockbrokers FX trading platform on that date were in GBP/USD.

FX trading allows investors to ‘short the market' and speculate that a currency will continue to fall versus another currency and therefore gain returns from trading in the right direction.

‘We have seen a shift in client sentiment over the last few weeks with some clients selling sterling against a variety of currencies as the UK economy continues to face challenging times,' commented Barbara-Ann King, head of proposition at Barclays Stockbroker. ‘But as expected we see that traders are taking advantage of these market conditions and since launch we have seen a strong take up of our FX product.'

All the high street banks offer foreign exchange trading facilities, as do specialist traders like Moneycorp, HiFX and Travelex, often offering better terms than the high street banks. Minimum investments tend to be around $100,000 to get a decent rate.

For those with smaller sums it is possible to take advantage of currency movements by opening a foreign currency deposit account or fixed term account. For example, Halifax International is paying a variable 3 percent gross on dollar deposits of $25,000 or more and 4.45 percent gross on euro deposits of €25,000 or more.

Similarly Cater Allen allows customers to hold currency accounts in euros or dollars with a minimum balance of 10000 euros or $10000.

And if you get it right, it's worth doing. On 15 July 2008, one pound sterling bought $2.0049. Today it would purchase just $1.78. A 100,000 pounds deposit in US dollars made on 15th July as $200,490 would today be worth 112,634 pounds. (c) Citywire Financial Publishers Ltd 2008.