Video: The sinking greenback

By Correspondent
NBC News
updated 2/20/2004 7:47:17 AM ET 2004-02-20T12:47:17

British tourists and consumers are flocking to the United States these days because of the tremendous buying power of the British pound. European holiday plans have been shelved in favor of visits to American shores in order to cash in on the positive currency exchange, according to travel executives here.

For the first time in 11 years, the British pound sterling is worth almost twice as much as the dollar. The exchange rate, today at around $1.90 to sterling, is enough to strike fear in the hearts, or at least the pocketbooks, of American tourists heading to Britain.

But British tourists are more than happy to take advantage of it and head to the United States.

British tour director Brent Hoberman of "Last Minute.com" said the bargains in the United States have resulted in a flood of tourists to American cities.

"New York has now overtaken all of the European cities as our number one 'city break' destination," he said. Most flights from London to New York are completely full, Hoberman said.

A recent report on the "Times of London" outlined the bargains to be had, noting that Britons can purchase products for half the price they would spend at home.

For instance, a compact disc that cost 12 pounds in London (approximately $22) can be had for six pounds or $12 in the United States. Likewise, a Chevy Cavalier that would cost you 16,000 pounds in the United Kingdom can be acquired across the Atlantic for less than 8,000 sterling.

The bargains are not limited to merchandise. British tourists are scooping up bargain air fares, hotels, and tours to visit places like New York and Washington D.C. 

In London, a taxi driver even asked for directions to "Potomac Mills," the big discount mall about 20 miles south of Washington, D.C.. The driver said he wanted to go for the bargains.

The reverse is the case for Americans in London who quickly learn to paying double the value given in pounds for hotels, meals, and theater tickets.

"When I look at the prices, my eyes just open and I go crazy, and say 'I can't buy that,'" said one shocked U.S. tourist in London, who declined to give her name.

Drop in American tourism
The exchange rate has put a damper on the United Kingdom's tourist business.

"I think it's going to make it very expensive for Americans and they would consider whether or not to come to the UK. I certainly think it'll impact things at almost the same level as SARS," said Peter Murphy, the manager of the Sheraton Hotel in Edinburgh.

Economist, Justin Urquhart Stewart, said the imbalance is essentially the result of two factors. The higher central bank interest rates in Britain -- around 4 percent versus 1 percent in the United States -- is supportive of the British currency while the high level of borrowing, both on a government and personal level, in the United States is hurting the greenback, he said.

Stewart believes that until those two issues are brought back into balance, "the dollar will continue to weaken."

Most financial experts here expect the exchange rate to go to $2.00 to one pound or higher in the next few weeks, some predict it could get even worse.

But according to Stewart, it’s not just about bargains; there are more ominous overtones.

“Volatile currencies are always very dangerous, they can destabilize what’s going on. Because they tend to swing too far one way, too far the other way and that means it can upset trade, it can upset manufacturing, and it can upset jobs," he said. "And we look at America particularly at a time like this with an election coming up, and we're concerned."

NBC's Pentagon reporter, Carl Rochelle, is on assignment in London.

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