Bargain Breaks On A Budget!

Sterling may have slumped heavily against the dollar, but we reveal a range of destinations where your pound will still go a long way...

This year on my travels, I was fortunate enough to voyage down the west coast of America.

And, despite being stranded in the Grand Canyon for a night (I kid you not), escaping near death by driving on the wrong side of the road (though as I'll always assert, the right way), and being mortified and somewhat embarrassed by the rather generous tipping etiquette, I ate like a king, and enjoyed a rather fabulous exchange rate of nearly $2 for each of my British pounds.

However, these days are no more. Sterling hit a new low against the US dollar last week, tumbling to levels seen on Black Wednesday - $1.53 to £1!

It wouldn't surprise me if travellers to the States are now  thinking twice about that trip across the Atlantic.

Then again, the dollar is not the only currency bullying the pound at the moment. Sterling has fallen sharply against the Euro over the past two years, and has been on a downward spiral since the start of 2007 when it was trading at _1.5 per £1. Now £1 is worth just _1.26.

But, fans of clichés will know that every cloud has a silver lining. And while America, Europe and other countries pegged to these currencies may be a no-go at the moment, according to foreign exchange specialist Travelex, Australia and South Africa are proving to be the currency bargains of the moment.

Travelex says that the pound has risen against the Australian dollar by 16% in the past month alone, as collapsing commodity prices send ripples through the currency.

The British pound has also strengthened against the South African rand by 19% in the past month, as investors seek shelter from emerging markets, which are quickly becoming the next victim of the global economic slowdown.

But before we shed light on the countries you should be placing in your holiday basket, perhaps it's worth exploring just why sterling has lost so much of its value over the past year.

Currency calculations

Explaining foreign exchange rates is pretty complicated stuff. Just like stock markets, rates are heavily influenced by both speculation and economic climates. Who'd have thought all this would affect how much you actually pay for that bag in Bloomingdales eh?

One way countries influence currency values is via interest rates. Higher interest rates attract more investors in a currency because of the better returns they get on their investment. The more that people buy a currency, the more its value gets pushed up.

For example, Iceland's dramatic 6% hike in interest rates was partly done to prevent its currency going into freefall, and to encourage investors to place money within its shores.

In this same way, the recent interest rate cuts in Britain have made sterling less attractive, as investors seek better places to get returns on their cash.

However, the flipside to this coin is that when confidence in the markets is low, investors often buy into traditional `safe-havens' such as the US dollar to shelter themselves against risk, even though interest rates there are lower than in Britain and Europe.

As investors sought safety in the greenback, this pushed the currency up against perceived weaker currencies such as our very own pound, hence why sterling is not worth as much as it used to be.

Currency rates, just like stock markets also fluctuate by the minute. For example, the US dollar lost value against several currencies this week. Why? There was a half-point interest rate cut in the US, so some investors decided to exchange their dollars and take a punt on higher-yielding currencies.

Still with me? Let's move away from the boring stuff and look at where sterling is still strong.

Here's a table of how sterling has performed against ten currencies since the start of the year:

Source: Bloomberg. Data correct as at 29 October 2008

Unsurprisingly perhaps, the biggest faller in the list is Iceland's krona. Some savvy travellers are already taking advantage of this fact, and according to statistics from Visit Reykjavik, visitor numbers are up by 20% since the country went into meltdown.

So if you fancy seeing if you can get a view of the Northern Lights, or want to relax in one of Iceland's many geysers, now couldn't be a better time to venture over, with sterling worth 55% more now than it was at the start of the year.

Another alternative is South Korea, which has seen its currency fall nearly 24%, as the country suffers its own economic troubles. In contrast, neighbour Japan is proving poor value for tourists at the moment, with the pound worth 28% less than it was at the start of the year.

Growing concerns about emerging markets have also led currencies in eastern Europe to slide against the dollar recently. However, while they may be weakening against the dollar, currencies such as the Polish zloty and Czech koruna have continued to hold up against the pound.

Despite this, Serena Cowdy's article Europe's Cheapest City Break still presents reasons why destinations such as Poland could still be tempting.

New Zealand, like Australia is another country which may appeal to us Brits, and you can get 10% more New Zealand dollars for your dosh at the moment.

Weighing up the costs

There are also a number of travellers venturing to destinations more far flung than Europe, but in many ways cheaper when they arrive.

For example, according to online travel agent Opodo, the number of trips to culture hotspot Peru has doubled during the past year, as holidaymakers seek out destinations where the overall cost of living is lower.

Egypt has become another holiday hotspot, with bookings up 76% compared to this time last year.

These destinations are not necessarily cheaper in terms of currency values. For example, the British pound has weakened by nearly 17% against the Egyptian equivalent this year. However, with the cost of eating out and getting around still a lot cheaper than on the continent, many tourists are diving in to less traditional holiday destinations to try to beat the currency squeeze.

Wherever you decide to go on holiday -- or not at all, it seems that US and Europe will prove more expensive for us Brits for the considerable future. If you do plan to stay at home, this article provides some handy hints on how to make the most of what the UK has to offer.

At the end of the day, air tickets to long-haul destinations such as Australia will inevitably cost more, no matter how weak their currency is at the moment. However, alternatives such as these will not only expand your horizons, but could end up saving you some hard-earned cash on the way.

Please also add your own bargain holiday suggestions at the bottom of the article!

More: The Cheapest Holiday Hotspots Uncovered / Ten Top Tipping Tips For Travel Trips