The euro-dollar exchange rate gives a sharp discount for Americans

The euro-dollar exchange rate gives a sharp discount for Americans

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Americans traveling to Europe can do it a little cheaper than in recent years.

The US dollar is trading at its highest level in about two decades against the euro, meaning travelers can buy more from abroad.

This means that Americans actually receive discounts on hotels, car rentals, tours and other goods and services denominated in euros. And it’s not just the euro – the value of the dollar is now the highest in recent years against many other foreign currencies, according to travel experts.

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No one knows how long the good times will last. Some may wonder: Should I act now to lock in a favorable exchange rate?

“Now I’m going to pull the trigger.” – Aiden Freeborn, senior editor of the travel site. Broken Touristtold CNBC.

“You can play it safe and wait until things improve, but that could backfire,” he added. “Don’t be too greedy; accept the fact that this is a very strong position.”

Here’s what you need to know and how to benefit.

Americans get a 16% discount

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How many discounts are travelers getting right now? Let’s look at Euro As an example.

Euro is the official currency for 19 out of 27 Members of the European Union: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.

The euro has been depreciating against the US dollar for over a year now. On July 13, it reached parity with the US dollar. for the first time since 2002 – this means that the two currencies had an exchange rate of 1:1.

Since then, the euro has fallen further. At the close of the market on Monday, one US dollar could buy almost 1.01 euros. Americans are getting a discount of about 16% over last year.

“The exchange rate is ridiculous right now,” said Charlie Leocha, chairman of the advocacy group Travelers United. “It does everything in Europe that used to be expensive, not so expensive.”

But the strength of the dollar is wider than just the euro.

For example, Nominal Broad US Dollar Index measures the appreciation of the dollar against the currencies of major US trading partners such as the Canadian dollar, British pound, Mexican peso and Japanese yen in addition to the euro. Over the past year, it has grown by more than 8%.

In addition, since July the index has hovered near its highest reading dating back to at least 1973, according to Andrew Hunter, senior US economist at Capital Economics. There is one exception: the period from March to May 2020, when international travel was largely unavailable due to pandemic Covid-19.

“I think overall now is the right time to travel overseas,” Hunter said. “Basically, now is a good time to buy foreign currency.”

Why the US dollar is stronger

Matteo Colombo | Moment | Getty Images

According to Hunter, the strength of the dollar is due to several factors.

Perhaps the most telling is US Federal Reserve Campaign to Raise Interest Rates. The central bank has been more aggressive than others in the world in raising the cost of borrowing; According to Hunter, the dynamics creates an incentive for international investors to hold funds in dollar-denominated assets, as they tend to yield higher returns.

Recently, skyrocketing natural gas prices have contributed to an “increasingly bleak” economic outlook in Europe, Hunter said. Meanwhile, U.S. natural gas prices remain broadly stable, with the main trend being the continued sharp fall in gasoline prices, he added.

Earlier this year, rising oil prices dampened growth prospects in some advanced economies (particularly Europe) relative to the US. war in Ukraine) prompted investors to flock to safe-haven assets such as the US dollar.

“Further gains in the dollar, if it materializes, are still likely to be relatively small compared to the gains we have already seen,” Hunter said. “But there may be a little more room for the dollar to strengthen further now than we previously thought.”

Of course, currency movements are notoriously difficult to predict, he said.

The European Central Bank also interest rate hike in July for the first time in 11 years. So far, this does not appear to have affected the strength of the US dollar against the euro, according to Freeborn.

“But it signals that the ECB is now taking action,” he said. “So it may only be a matter of time before the euro starts rising against the dollar – so now is the time to travel.”

Pay in advance to lock in low exchange rates

Of course, that’s not all to say that Americans are sure to reap financial rewards all over the world.

But tourists planning or considering a trip to a country where the dollar is historically strong can lock in that favorable exchange rate by booking a hotel, car rental or other service today instead of postponing spending, travel experts say.

This is especially helpful for those who have a trip of at least three months in advance, Leoch says.

“You can pay up front and sometimes you get a discount for paying up front – so you get a discount and a low exchange rate,” he said.

Please be aware that in some cases you may be charged an additional international transaction fee when purchasing with a credit card from abroad. Some passes don’t include these fees, which are typically 3% of the purchase price, Leoch said.

The fees may depend on where the company you are dealing with is located. There are no foreign transaction fees if the purchase is made through a third-party U.S. entity such as Expedia, Leoch says, but it is often charged if it is booked directly through a foreign entity, such as a real hotel.

When to convert cash for a trip abroad

Travelers can also convert cash before traveling, but generally should only do so if the trip is months away, according to travel experts.

This is because providers such as banks usually offer a less generous exchange rate, which means that the customer may be better off waiting to arrive in the destination country and make purchases with a credit card, especially if it incurs no fees. for a foreign transaction.

While overseas, merchants may offer travelers a choice of purchasing “with or without conversion” or some similarly worded prompt. Travelers must reject this conversion offer This means they must select the transaction in the destination currency rather than converting that price to dollars in order to get a better exchange rate, experts say.

Travelers who prefer to convert money to cash can hedge their exchange rate bets by converting half of their estimated spending now and saving for later (or until they arrive) to cover the rest, Freeborn said.

Correction: The nominal broad US dollar index has risen more than 8% over the past year. In an earlier version, the percentage was incorrect.

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