Euro-dollar exchange rate yields steep discount for Americans

on Sep6
by | Comments Off on Euro-dollar exchange rate yields steep discount for Americans |

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Americans traveling to Europe can do so a bit more cheaply these days than in recent years.

The U.S. dollar is trading at its highest level in roughly two decades relative to the euro — meaning travelers can buy more overseas.

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That means Americans are effectively getting a discount on hotels, car rentals, tours, and other goods and services denominated in euros. And it’s not just the euro — the dollar’s value is at its strongest in years relative to many other foreign currencies, too, according to travel experts.

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It’s unclear how long the good times will last. Some may wonder: Should I act now to lock in a favorable exchange rate?

“I’d pull the trigger now,” Aiden Freeborn, senior editor at travel site The Broke Backpacker, told CNBC.

“You could hedge and wait to see if things improve, but that could backfire,” he added. “Don’t be too greedy; accept the fact this is a very strong position.”

Here’s what to know and how to take advantage.

Americans are getting a 16% discount

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But the dollar’s strength is broader than just the euro.

For example, the Nominal Broad U.S. Dollar Index gauges the dollar’s appreciation relative to currencies of the U.S.’ main trading partners, like the Canadian dollar, British pound, Mexican peso and Japanese yen in addition to the euro. It’s up more than 8% in the last year.

Further, 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’s one exception: the period from March to May 2020, when international travel was largely inaccessible due to the Covid-19 pandemic.

“I think the big picture is, now is probably a good time to go abroad,” Hunter said. “Now is a good time to buy foreign currency, basically.”

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“Further gains in the dollar if they materialize are still likely to be relatively small compared to the rise we’ve already seen,” Hunter said. “But there’s maybe a bit more scope for further dollar appreciation now than we previously thought.”

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

The European Central Bank also increased interest rates in July, for the first time in 11 years. So far, that doesn’t seem to have impacted the strength of the U.S. dollar relative to the euro, Freeborn said.

“But it does signal 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 lock in low exchange rates

Of course, this isn’t all to say Americans will necessarily reap financial rewards the world over.

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, rental car or other service today instead of deferring the cost, according to travel experts.

This is especially worthwhile 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.

Be aware: In some cases, you may owe an additional foreign transaction fee for a credit card purchase overseas. Some travel cards eliminate these fees, though, which generally amount to 3% of the purchase price, Leocha said.

Fees may depend on where the company you’re transacting with is based. There isn’t a foreign transaction fee if the purchase is through a third-party U.S. entity like Expedia, but there often is one if booked directly through a foreign entity like the actual hotel, Leocha said.

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