What's happened?
Growing expectations that UK interest rates will rise within the year are propelling the pound upwards. In early trading in London it rose above the $1.70 mark for the first time since August 2009, before later slipping back slightly. The pound also rose to a 18-month high against the euro, passing the €1.25 mark.
What does it mean for business?
Imports become cheaper, making life easier for retailers, which can sell food and white goods at lower prices. Manufacturers enjoy cheaper raw materials and can retain the benefit if they sell their wares in the UK. But exported goods and services become more expensive, hitting Britain's balance of payments.
I'm not going away until August. Should I buy my currency now?
Compared with this time 11 months ago, the pound is up 14% against the dollar, so anyone changing £500 will pocket an extra $103. The pound has risen 8% versus the euro on 10 months ago – meaning an extra €45 for every £500 exchanged.
Holidaymakers keen to lock into today's exchange rates could consider a prepaid currency card. They look just like a credit or debit card, tend to be issued by specialist foreign exchange companies such as Travelex, Caxton FX and FairFX, and typically allow you to preload money from your bank account on to the card, fixed at that day's exchange rate. Travelex customers can top up their card online, by phone or in store, whenever they feel the rate is in their favour.
If you are considering one of these cards, it's vitally important to check the exchange rate, and the fees and charges for using them. If you leave a balance on them, say for your next holiday you may be hit with a "non-usage" fee. With Travelex's Multi-Currency Cash Passport card, for example, if you don't use it for 12 months, a £2 "inactivity fee" will be swiped off your balance each month.
Will the pound strengthen further?
Alex Edwards at currency firm UKForex said: "This week we have UK inflation data on Tuesday and the monetary policy committee meeting minutes on Wednesday, at which point we should learn more about the appetite for rate hikes from MPC members." If the tone is hawkish or there is a surprise vote for a rate hike from at least one member, we could well see the pound/dollar "make a sustained move above the 1.70 level before the week is out," he added.
What if I decide to hold on until I go?
If you do decide to hold fire on sorting out holiday money until you go, don't buy it at the airport, pre-buy it online a few days before departure – either for collection or home delivery – and your cash will go considerably further.
Meanwhile, pick the right plastic to use while you are away. The Norwich & Peterborough Gold Classic current account, for instance, is one of the very few UK bank accounts that offers completely free debit card usage abroad.
Whatever you do, if a shop, restaurant or hotel offers the option to pay in sterling, rather than the local currency, insist you pay in the latter. The same applies to ATMs. Always choose to pay in the currency of the country you are visiting.
