CONSUMERS were last week offered $2 to the pound on the high street for the first time in 26 years as the American currency plumbed new lows against sterling.

Though the pound first broke the $2 mark in April, it is only now, with the exchange rate in the wholesale market at $2.08, that consumers are seeing the benefit in high-street bureaux de change.

Banks and exchange firms typically offer rates that are 4% worse than the money markets, in addition to their conversion fees. With £4 billion exchanged into dollars alone each year, this means they are raking in an extra £160m at the expense of customers.

Travelex saw a 40% surge in the amount of US dollars bought last week after offering a rate of $2.01 to the pound online. M&S Money, meanwhile, is offering $2 in its 107 bureaux de change until the end of today.

About 4m people travel to America every year and the number is expected to jump 20% this autumn as shoppers seek to capitalise on the strong pound ahead of Christmas.

Many are buying the currency now, even if they are not travelling for some time, in the belief that last week’s exchange rate could be as good as it gets.

Sterling’s strength was fuelled by the Federal Reserve’s decision to cut US interest rates for the second time in two months, from 4.75% to 4.5% last week. Meanwhile, interest rates in Britain are expected to remain on hold at 5.75% until next year, which makes the pound more attractive than the dollar.

The pound duly rose to a 26-year high of more than $2.08 on Friday, while the euro touched $1.45 – its highest point since its 1999 debut.

The last time sterling peaked was in July when it hit $2.06, but the rally was short lived. The exchange rate was back down at $1.97 by the middle of August, suggesting consumers should capitalise on the pound’s strength while they can.

Paul Robinson of Barclays Capital, an investment bank, thinks that while the pound could go to $2.10 in the short term, it will be back at $1.96 by this time next year as the Bank of England cuts interest rates.

However, Martin Briggs of HIFX, a broker, thinks the pound could strengthen even further to $2.20.

Investors have also been cashing in on the strength of the pound to buy US stocks. Shares tend to rally when the Federal Reserve cuts interest rates, and if the dollar also strengthens from here it could be one of the best times for years to buy American blue chips. We offer some tips on playing the currency markets.

Buy dollars now with a prepay card

While you can get $2 to your pound on the high street, analysts said there are better ways to buy dollars – especially if you are not travelling for some time.

Prepay cards let you load up on foreign currency when the exchange rate is in your favour, so you don’t need to worry about storing hard cash. Rob Kenley of Moneysuper-market.com, a comparison site, said the best prepaid cards for dollars are the Barclays Prepaid Travelcard, the Post Office Travel Money card and the Travelex Cash Passport as they do not charge an application fee.

The cards can be loaded up with sterling, dollars or euros. Once abroad, they are used like any bank card with a Pin. Purchases in shops incur no charge, but users pay around 2.5% to withdraw cash at ATMs in the US.

If you had loaded up a card with £1,000 last week, you would have got $2,030 with Barclays, $2,011 with the Post Office and $1,969 with Travelex.

Use a forex broker

Many foreign-exchange brokers offer forward contracts that allow you to lock into a favourable rate now, even if you don’t need the money for many months – and the rates are often better than on the high street.

Last week, broker HIFX was offering an exchange rate of $2.04 including its fees on £200,000 in one year’s time.

You would have to put down a 10% deposit of £20,000 now, with the remaining £180,000 due in 12 months.

Open a US share account

Stockbrokers have seen a surge in investors buying American shares.

Mark Dampier of Hargreaves Lansdown said: “It’s never been wrong to buy US assets when the dollar has been so weak.”

Many stockbrokers have multi-currency trading accounts which will automatically convert your money when you buy foreign stocks.

They also let you leave the money sitting in dollars if you want to take advantage of the strong pound now, but drip-feed the money into US stocks at a later date.

TD Waterhouse’s multi-currency account, for example, exchanges your money at the mid-market wholesale rate – plus between 0.25% and 1%, depending on the amount you are converting. This is cheaper than a broker for big deals but it is always worth checking who offers the best rate.

Angus Rigby of TD Waterhouse said: “In view of the current strength of the pound against the dollar, TD Waterhouse customers are capitalising on our multi-currency facility. Currency markets are always cyclical and there is no doubt the rate will come off again, although who knows when?”

Clients are stocking up on blue chips such as Apple and Google, although they are also taking advantage of weakness in bank shares; the second most traded US stock last week was the beleaguered bank, Citigroup.

Tips for bargain-hunting trips

MORE than 400,000 British shoppers are expected to cross the Atlantic this month alone to take advantage of the strong pound. We offer some tips.

Where are the best places to shop?

Flight Centre, which provides packaged shopping holidays to the United States, searches American outlets for the best discounts being offered.

Franklin Mills Malls in Philadelphia, the largest outlet mall in the United States, has no sales tax on clothes and shoes for both domestic shoppers and tourists. Normally, shoppers are charged 6-7% in Pennsylvania.

The big New York department stores, Bloomingdale’s and Macy’s, are offering an extra 11% off to foreign tourists. All you need to do is show your passport at the checkout.

Meanwhile, Century 21, in Manhattan and Brooklyn, is offering up to 80% off the recommended retail price, according to Flight Centre.

What about the tax?

UK customs lets you bring back up to £145 of goods, after which you must pay duty of between 5% and 9% plus 17.5% Vat.

However, with some goods half the price in the US than the UK, you should still make considerable savings on your shopping trip.

What about excess baggage?

There is usually a limit to how much baggage you can carry back with you without paying an additional fee.

American Airlines, for example, have a limit of 46kg and two suitcases. If you go above that you will automatically be charged an additional $25.

Do I need to go over there?

You can buy goods from American stores online, but in many cases, you will need to provide an American address. Borderlinx (www.borderlinx.com) can provide this.

Once you decide to ship over the goods, you will be charged a fee based on their weight. Up to 5kg is charged at $60 for a four-eight day delivery, while express delivery of between two-three days will cost $80.

You will also have to pay all taxes, which can be calculated on the Borderlinx website.

Signing up to the service costs a $5 fee, although you will receive $10 cashback on your first order.

In most cases, the delivery charges will outweigh the savings you make on the goods.

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