I have the same issue, and I've lost like 20 USD because of this conversion. Even my CreditCard support multiple currencies and my bank rates are like 10% lower than PayPal's!!! According to the user agreement updated on 10th of October, you're forced to do the conversion when funding your PayPal account, and conversions are way larger than nominal currency selling rate (2.5% in my case). "Currency conversion that occurs when receiving other payments (including Mass Payments), withdrawing funds to your local bank account (if your PayPal balance is held in a currency other than your local currency), adding funds from a bank account to your PayPal Account or when transferring funds between your PayPal balances held in different currencies (as applicable); " So, you have no other choice, no matter what currency preference of your account is, you'll be charged one way or another. If your currency preference is USD, you'll be charged for conversion from Pounds to USD when charging from credit card. If your currency preference is Pounds, there will be no conversion when charging your credit card, but you'll have conversion because you're buing in USD. To add a bit to it - I'm not even able to choose my local account currency as my primary currency! PayPal doesn't support it in that case! When I don't need it - it's there! I find this behaviour very rude of PayPal and I will probably find other providers of my online walled.
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