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Exchange rates, currency sites and the strong Dollar
November 12, 2008
Following our post on the interest rate cut earlier in the week, we’ve been looking at the impact of exchange rates on UK Internet behaviour. For the last few years, people travelling to the US from the UK (and the Eurozone) have suddenly found themselves feeling quite rich upon entering a shopping mall or restaurant. The weak Dollar helped make America feel like a cheap destination for European shoppers, but the financial crisis is putting an end to all that.
Cautious investors stung by the credit crunch have been fleeing to the Dollar, and the greenback is now much stronger against sterling. Back in July a British Pound would have bought 2 Dollars; today you would get just 1.56. One consequence of the strengthening Dollar is that more people are visiting currency websites. In fact, as the chart below illustrates, there is a correlation between UK Internet traffic to currency websites and the strength of the Dollar. To put it simply: the stronger the Dollar, the more us Brits visit currency sites.
To briefly explain the chart above: the orange line tracks traffic to a custom category of currency websites, while the blue line represents the strength of the US Dollar (USD) against the British Pound (GBP). We’ve represented the strength of Dollar using an index based on the exchange rate in September 2005. To give you the numbers: on September 3rd 2005, $1 would have bought you 54p, by last Saturday (08/11/2008) that had increased to 64p.
To me this data tells two interesting stories. The first is that more people go to currency sites when the Pound is weak than when it is strong. The second is how closely traffic is tied specifically to the Dollar – there was no correlation at all between currency sites and Pound–Euro exchange rates.
For reference, here is list of the top currency sites in the UK during October. This table is based on a custom category of currency websites that was created by looking at the top sites receiving traffic from key search terms such as ‘exchange rates’, ‘currency’, ‘dollar’, ‘euro’, etc.
Posted by Robin Goad at 09:00 AM
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In Categories Economy | Financial Services | Travel
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I wonder why there's no tie between traffic to currency sites and pound-euro exchange rates. I know the dollar can be considered a safe harbor for investors worldwide, but I'd expect the UK's economy to be tied closely to the economies of the Euro zone. Are these economies effectively decoupled, or does the overwhelming focus on the relationship between the pound and the dollar ignore an important relationship between the pound and the euro? I'd be interested to see whether a tie develops in the months and years to come.
Posted by Big J | November 12, 2008 04:13 PM