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It’s a good time to be an American traveling abroad.
The value of the US dollar has been at its strongest in years against many major global currencies lately, meaning travelers can shop more abroad than in the recent past.
In other words, Americans effectively get a discount on hotels, car rentals, tours, and other goods and services denominated in many foreign currencies.
But there’s no telling how long the good times will last. Some may wonder: Should I act now to secure a favorable exchange rate?
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“I would pull the trigger now,” said Aiden Freeborn, editor of travel site The Broke Backpacker.
“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.
“Now is a good time to buy foreign currency”
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How much are travelers currently discounted? Take the example of the euro.
The euro – the official currency of 19 of the 27 members of the European Union – has lost value over the past year and reached parity with the US dollar on July 13 for the first time since 2002. parity means that the two currencies had an exchange rate of 1:1.
Americans were still about 13% discounted from a year ago as of Tuesday’s market close, despite rebounding slightly from that decades-old low.
“The current exchange rate is ridiculous,” Charlie Leocha, president of Travelers United, an advocacy group, said of the depressed level of the euro. “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 9% last year.
Moreover, the index is hovering around its highest point dating 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 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 has strengthened
The dollar’s strength is largely attributable to three factors, Hunter explained.
Perhaps most consequential is the US Federal Reserve’s campaign to raise interest rates (ie borrowing costs). The central bank has been more aggressive than others around the world, Hunter said; the dynamic creates an incentive for international investors to keep their funds in dollar assets since they can generally earn a higher return.
In addition, a spike in oil prices this year has 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 like the US dollar.
While the U.S. dollar will likely remain strong for another six months or so, it is likely at or near its peak against other major currencies given current economic momentum, Hunter said — with the caveat that the Currency movements are notoriously difficult to predict.
“You always have the uncertainty of what will happen in the future,” he added. “The dollar could still strengthen, but it could fall again.”
Pay in advance to guarantee low exchange rates
Row houses on Weissgerbergasse in Nuremberg, Germany.
Sakchai Vongsasiripat | time | Getty Images
Of course, that’s not all to say that Americans will reap financial benefits 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.