For American travelers heading abroad, the growing strength of the dollar is the upside of a volatile economy. Currently, the exchange rate with the euro is about $1.04, meaning each 100 euros will cost about $104. One euro was worth about $1.22 this time last year. The present rate is down significantly from its high in 2008, when each euro was worth $1.58.
The dollar is up against other foreign currencies, too, including the British pound. Currently, $1 buys about 82 pence, making the cost of 100 pounds about $122. Last June, the rate was 70 pence to the dollar, meaning 100 pounds cost about $143 then.
This means that spending abroad is cheaper. A 5-euro glass of wine in Rome in 2008 might have cost about $8, compared to $5.20 today. A 100-euro rental apartment in Paris that is $104 this summer might have been $158 when the euro peaked. And a 60-pound ticket to London’s hit revival of “Cabaret” costs $73 now, while a similarly priced show last summer would have cost $85.
But are you better off, considering that hotels and flights cost more now, too? And how do you make sure you’re getting the best rate? Here is what’s driving the market and how to make the most of a strong dollar abroad.
Why is the dollar up, and for how long?
The dollar has gained notably against the euro and some economists believe it may reach parity — something not seen in 20 years — by year end.
Why is it going up? As the Federal Reserve has raised interest rates to bring down inflation, the move has made investments here more appealing, which is one of the main reasons why the dollar is stronger, according to Tom Smythe, a professor of finance at Florida Gulf Coast University in Fort Myers, Fla. Additionally, the Russian invasion of Ukraine has roiled world economies, sending investors in search of safe havens.
“When bad things start to happen, people tend to migrate back to U.S. investments and that will strengthen the dollar relative to other currencies,” Mr. Smythe said.
All this means that U.S. travelers’ dollars will buy more in many overseas destinations. And most experts believe the dollar will remain strong throughout the year.
Diana Hechler, the owner of D Tours Travel, based in Larchmont, N.Y., who specializes in European travel, calls the improving rates a “sweetener” for clients considering Europe this summer and may help them overcome other considerations.
But aren’t prices higher, too?
As at home, prices are up abroad, about 8 percent among the major trading partners of the United States, according to Mr. Smythe.
“Prices are still going to be high, but relative to six months ago you’ll be able to buy more,” he said.
It’s not just inflation at work. Strong demand has pushed prices up.
At Tourist Journey, an online platform that allows travelers to customize travel planning in 20 countries, costs for the typical trip in Italy is 60 percent higher than last summer, when travel in Europe was depressed and rates especially low.
“With many hotels we collaborate with, it doesn’t matter what the budget is, there’s simply no availability,” wrote Ben Julius, the founder of Tourist Journey, in an email, noting that hotel rooms on the Amalfi Coast that went for $750 then are now priced around $1,000.
Airfares, normally purchased in U.S. dollars, are up, too. Round-trips to Europe are averaging $971, up 13 percent, according to the airfare booking app Hopper, but less than the 30 percent increase on domestic fares, which currently average $395 round trip.
The stronger exchange rate takes some of the sting out of lodging rate increases. The average daily rate for a hotel room in Europe in April was 118 euros ($123 using today’s exchange rate), compared to 109 euros ($114) in April 2019, a roughly 8 percent increase since the pandemic, according to STR, a hotel benchmarking firm. By comparison, the average increase at hotels in the United States in that period was nearly 14 percent and the average rate in April…
Read More: Getting the Most Bang for Your Buck While Traveling Overseas