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Americans traveling to Europe can do it a little cheaper these days than in years past.
The US dollar is trading at its highest level in about two decades against the euro, meaning travelers can shop more abroad.
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This means that Americans effectively get a discount 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 also at its strongest in years against many other foreign currencies, according to travel experts.
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We don’t know how long the good times will last. Some may wonder: Should I act now to secure a favorable exchange rate?
“I would pull the trigger now,” Aiden Freeborn, editor of travel site The Broke Backpacker, told CNBC.
“You could protect yourself and wait to see if things get better, but it could backfire,” he added. “Don’t be too greedy, accept the fact that this is a very strong position.”
Here’s what to know and how to take advantage of it.
Americans get a 16% discount
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How much are travelers currently discounted? Take the example of the euro.
The euro is the official currency of 19 of the 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 losing value against the US dollar for over a year. It reached parity with the US dollar on July 13 – the first time since 2002 – meaning the two currencies had a 1:1 exchange rate.
Since then, the euro has fallen further. One US dollar was worth almost 1.01 euros at the close of the market on Monday. Americans are enjoying about a 16% reduction from a year ago.
“The exchange rate right now is ridiculous,” Charlie Leocha, president of advocacy group Travelers United, told CNBC. “It makes everything that used to be expensive in Europe, but not that expensive.”
But the strength of the dollar is not limited to the euro.
For example, the Nominal Broad US Dollar Index measures the appreciation of the dollar against the currencies of major trading partners of the United States, such as the Canadian dollar, the British pound, the Mexican peso and the Japanese yen in addition to the euro . It increased by more than 8% last year.
Moreover, since July, the index has hovered near its highest point dating to at least 1973, according to Andrew Hunter, senior U.S. economist at Capital Economics. There is one exception: the period from March to May 2020, when international travel was largely inaccessible due to the Covid-19 pandemic.
“I think overall it’s probably a good time to go overseas,” Hunter said. “Now is a good time to buy foreign currency, wholesale.”
Why the US dollar is stronger
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The dollar’s strength is attributable to a few factors, Hunter said.
Perhaps the most significant is the US Federal Reserve’s campaign to raise interest rates. The central bank has been more aggressive than others around the world in raising borrowing costs; the momentum encourages international investors to keep their funds in dollar assets because they can generally earn a higher return, Hunter said.
Recently, soaring natural gas prices have contributed to an “increasingly bleak” economic outlook in Europe, Hunter said. Meanwhile, natural gas prices have remained broadly stable in the United States, where the main trend instead is the continued sharp decline in gasoline prices, he added.
Earlier this year, soaring oil prices hurt the growth prospects of some developed countries (particularly in Europe) relative to the United States. And economic uncertainty (due to factors such as inflation and recession fears and the war in Ukraine) led investors to flock to safe havens. assets like the US dollar.
“Further dollar gains if they materialize are still likely to be relatively small compared to the upside we’ve already seen,” Hunter said. “But there may be a little more room for further dollar appreciation now than we previously thought.”
Of course, currency movements are notoriously difficult to predict, he said.
The European Central Bank also raised interest rates in July, for the first time in 11 years. So far, that doesn’t appear to have had an impact on the strength of the US dollar against the euro, Freeborn said.
“But it signals that the ECB is now taking action,” he said. “As such, it may only be a matter of time before the euro starts to rise against the dollar – so now really is the time to travel.”
Pay in advance to guarantee low exchange rates
Of course, that doesn’t mean that Americans will necessarily reap financial rewards around the world.
But tourists planning or considering a trip to a country where the dollar is historically strong can benefit from this favorable exchange rate by booking a hotel, rental car or other service today instead of deferring the cost, according to travel experts.
It’s especially worth it for those with a trip at least three months away, Leocha said.
“You can pay in advance, and sometimes you get a discount for paying in advance – so you get a discount and the low exchange rate,” he said.
Please note: in some cases, you may have to pay additional foreign transaction fees for a credit card purchase abroad. Some travel cards, however, eliminate this fee, which is typically 3% of the purchase price, Leocha said.
Fees may depend on where the business you are dealing with is established. There is no foreign transaction fee if the purchase is made through a third-party US entity like Expedia, but there is often one if booked directly by a foreign entity like hotel itself, Leocha said.
When to convert money for a trip abroad
Travelers can also convert money before a trip, but generally should only do so if the trip is several months away, according to travel experts.
This is because suppliers like banks generally offer less generous exchange rates, meaning a customer may be better served while waiting to arrive in their destination country and making purchases with a credit card, especially if there are no foreign transaction fees.
Overseas, merchants can offer travelers the choice to make a purchase “with or without conversion” or according to a similarly worded prompt. Travelers should decline this conversion offer — meaning they should choose to transact in the destination currency instead of converting that price to dollars — to get the best exchange rate, experts said. .
Travelers who prefer to convert to cash can hedge their exchange rate bets by converting half of their estimated expenses now and waiting until later (or until they arrive) to cover the rest, Freeborn said.
Correction: The broad nominal US dollar index has risen more than 8% over the past year. An earlier version incorrectly indicated the percentage.