The Cable

Britain’s Plummeting Pound Is Bad News for America

The Brexit hits international tourism to the U.S. and keeps historically low oil prices in place.

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Fallout from Britain’s decision to leave the European Union continued Tuesday, with the once-powerful pound falling to its lowest levels against the U.S. dollar in three decades.

This is bad news for Britons, who have seen the value of their currency drop to  $1.30 vs. the dollar — on June 23, one pound was worth $1.49 — and to its lowest since 2013 against the euro. This hurts British spenders and savers, who now see accounts worth much less than they were against international currency before the Brexit. It’s also bad news for British holidaymakers, who will have to pony up more for their vacations in Spain, Greece, and other parts of the Mediterranean.

It’s also a sign of continued worry about the negative impact of Britain leaving the EU. On Tuesday, M&G Investments suspended a 4.4 billion-pound ($5.7 billion) real-estate fund there, following in the footsteps of Aviva Investors and Standard Life Investments after a number of redemption requests.

The only upside from a weaker pound is that it makes British goods more attractive to foreign buyers. But the UK manufacturing sector is not strong enough to keep the entire economy afloat. Almost three quarters of economists surveyed by Bloomberg expect Britain to slide into recession.

The effect from the weakening British pound is felt far beyond British shores. It adds to the relative strength of an already robust U.S. dollar. For months, companies from Macy’s to Tiffany’s complained that a strong dollar makes it less attractive for foreign tourist to shop at their American stores. The U.S. Travel Association’s Travel Trends Index, released Tuesday, shows international inbound travel to the U.S. has been down for three straight months.

“It will be interesting to see how global events, such as Britain’s recent vote to leave the European Union, affect these trends in the months ahead,” said David Huether, U.S. Travel’s vice president for research.

The weaker pound and strong dollar also throws some cold water on news that the United States, for the first time, holds more oil reserves than Saudi Arabia and Russia, the world’s two largest oil exporting nations. Rystad Energy estimates recoverable oil in the U.S. from existing fields, discoveries, and as yet undiscovered wells totals 264 billion barrels. Saudi Arabia’s has 212 billion barrels in reserve, while Russia has 256 billion.

Just two years ago, when oil prices were above $100 per barrel, news of swelling U.S. reserves would have been celebrated in oil producing regions in the United States, like Texas, Oklahoma, and South Dakota.

But a rising dollar, all else being equal, pushes oil prices lower, since crude is priced internationally in dollars. Oil was down more than 4 percent in New York and London on Tuesday. That means the continued fallout from Brexit could keep oil prices lower for longer, spelling even more pain to come in the U.S. oil patch.

Photo credit: KOEN VAN WEEL/Getty Images

David Francis was a senior reporter for Foreign Policy, where he covered international finance. @davidcfrancis

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