Weaker U.S. dollar making travel to Europe more costly

When the US dollar strengthens against other currencies, it signifies that Americans should buy more abroad. Their dollar stretches further.

The euro reached parity with the US dollar in July – for the primary time since 2002, Americans enjoyed a 1:1 exchange rate with the euro.

Not all European countries use the euro – this is known as official currency for 20 out of 27 members of the European Union.

Until the top of September, Americans could buy one euro for just 96 cents. But the US dollar has lost around 14% of its value against the euro since its last high; From April 4, Americans needed $1.10 to purchase one euro.

Let’s say a hotel room in Rome costs 200 euros an evening. An American would pay $220 an evening today in comparison with around $192 in September.

“Europe was a flashy, low-cost deal for Americans for much of last 12 months,” said Mark Zandi, chief economist at Moody’s Analytics. “For Americans, traveling abroad remains to be a chance.

He noted that “it doesn’t occur once in a lifetime anymore.”

But it isn’t just the euro.

The Nominal Broad Dollar Index measures the strength of the dollar against the currencies of major U.S. trading partners in North America, South America, Asia and Europe.

The index is down about 7% from its late-September high – a “quite significant” fall in currency terms, Goltermann said.

The weakening of the dollar coincides with a record variety of international trips estimated this summer by the US State Department he said in March. Demand for brand new passports has skyrocketed, resulting in months of delays in processing applications as travellers’ concerns concerning the pandemic eased and nations eased Covid-19 travel restrictions.

International travel accounts for around 56% of searches amongst U.S. travelers, up from 46% last 12 months, in response to travel app Hopper’s Consumer Travel Index published in February. Hopper said greater than half of searches to international destinations are in cities in Europe (34%) and Asia (25%).

There are several the explanation why the dollar strengthened – after which weakened – against the euro and other currencies.

Interest rates are generally the most important driver of currency movements, Goltermann said.

The US Federal Reserve began raising rates of interest in March 2022 to tame persistently high inflation. Central banks in Europe haven’t been raising rates of interest as aggressively, and the resulting spread in rates of interest meant that investors were leaning towards US bonds because they might earn more money by helping the dollar strengthen, Goltermann said.

However, the Fed has signaled that the speed hike cycle is coming to an end while rates of interest in Europe and the UK proceed to rise, making the US relatively less attractive to investors, Zandi said.

Meanwhile, the US is mostly seen as a refuge where nervous investors direct their money in turbulent times. The war in Ukraine that began in early 2022 has led to a general sense of risk in Europe, which has driven extra money into US Treasuries. Now, most of the results of the Russian invasion appear to have worn off, and persons are a little bit less concerned than they were firstly of the war, Zandi said.

According to Hopper, a weaker dollar in 2023 coincides with travel costs expected to stay above pre-pandemic levels for much of 2023.

Part of this price pressure is as a result of the paucity of accessible supply – for instance, hotel rooms, plane seats and tours – to satisfy the growing consumer demand.

“If you see something that works for a very good price, buy it now,” said Sheree Mitchell, president and founding father of Immersa Global, a tour operator specializing in tours to Portugal. That’s since it’s unclear what’s going to occur to provide and exchange rates in the approaching months, she said.

American travelers who fear a euro-dollar depreciation may decide to prepay for euro-denominated hotels, tours, tickets or other attractions to lock in today’s price, Mitchell said.

Those paying for accommodation and activities upon arrival should keep a number of common suggestions in mind, Mitchell said: Use a travel bank card with no foreign transaction fees if you might have one; attempt to have at the least two debit cards and two bank cards, especially when you are traveling alone, in case of unexpected issues resembling each day money withdrawal limits. She added that when you are using a card and have the selection of paying in US dollars or in a foreign currency, select a foreign currency – it would prevent money.

Pre-paying for a visit that is far in the longer term comes with some risks – for instance, in case your travel plans change and there is no flexibility when buying, Zandi said.

He doesn’t expect the dollar to weaken further for the remainder of the 12 months. It may even strengthen again, said Goltermann, who believes that among the recent weakening of the dollar has been exaggerated.

But the recent US banking turmoil could take a toll on the dollar if it spreads. The US is prone to defaulting on its debt if Congress cannot raise the debt ceiling later this 12 months – which might almost actually take the dollar down, Zandi said.

Ultimately, the exchange rate that Americans receive is way down the list of an important when considering overseas travel, Zandi said.

Travelers to France could also be more concerned about recent strikes over pension reforms which have taken place disrupted air trafficFor example.

“That can be more reasonable than ‘Is [euro-dollar exchange rate] be at $1.10,” said Zandi.