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 was about $150.
“In general, hotel rates in Europe are more reasonable than domestic rates, and the exchange rate only helps that,” said Keith Waldon, the founder of Departure Lounge, a high-end travel agency in Austin, Texas, who recently spent two months in Florence. “Plus, restaurant pricing in many cases has gone down as restaurants try to bring back demand.”
With seven Parisian locations, Orso Hotels is averaging 85 percent occupancy in June, which is high. Still, management has raised its prices only slightly in response to demand. Its nightly rates for the Hotel Leopold in the Montparnesse district in 2019, when it had just opened, was 150 to 200 euros. This June its average rate is 216 euros.
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“While we could increase our nightly rates after two distressed years, we have decided to not take that risk because we want people to return to Paris and be happy with their trip and have it at a fair price,” said Louis Solanet, the owner.
With his wife, Danny Groner, a marketing director in New York City, decided to go to Copenhagen and London rather than Panama this summer when they heard about the favorable exchange rate with the euro. (Since Panama effectively uses the dollar, the cost of traveling there won’t be altered by the dollar’s strength.) Most of their budget will go to airlines and hotels, but they expect to save on museum admissions, tours and food.
“If it costs a little more to get there and get settled, I feel hopeful that every other purchase will be a bargain in comparison,” Mr. Groner said.
Ms. Hechler, the travel agent, recently returned from a cruise on the Danube River where she got a jump start on Christmas shopping.
“I was used to $1.45 to the euro,” she said. “Why wouldn’t you go shopping right now?”
How to make the most of the exchange rate
There are three essential financial steps to ensuring you’re getting the best possible exchange rate, according to Leigh Rowan, the founder of Savanti Travel, a travel management company based in San Francisco: Pay with a credit card with no foreign transaction fees (determine this by calling your bank); withdraw cash abroad, if needed, via an A.T.M. in the local currency (and skip the currency exchanges at airports, which offer poorer rates); and always select the local currency on a credit card purchase if offered a choice between it and U.S. dollars.
By dealing in the local currency, you are avoiding what is known as dynamic currency conversion, where a merchant lets you see the cost in your national currency and may be trading on your ignorance of the official conversion rate.
“If you pay a merchant in dollars, they are marking up their own rate,” Mr. Rowan said. “If 100 euros is about $108, they might offer $118 and you’ll pay more because of your confusion.”
A favorable foreign exchange is just one incentive for many current travelers.
“Our travelers have maximized their dollars most these past three to six months, visiting countries such as Argentina and South Africa,” wrote Kareem George, the owner of Culture Traveler, a travel agency in Franklin, Mich., in an email. “The incentive of a stronger dollar is compounded by the fact that many of these destinations remain far from their prepandemic visitation levels. Travelers are enjoying major attractions with fewer crowds and are greeted warmly and attentively by locals keen to have tourism return.”
Elaine Glusac writes the Frugal Traveler column. Follow her on Instagram @eglusac.