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This is a good time to be an American traveling abroad.
The value of the US dollar was at its strongest level in years against many major global currencies at the end of the year – meaning tourists were able to buy more abroad than in the past.
In other words, Americans are effectively getting discounts on hotels, car rentals, tours, and other goods and services in multiple foreign currencies.
But it’s unclear how long the good times will last. Some may wonder: Should I act now to lock in a favorable exchange rate?
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“I want to pull the trigger right now,” said Aiden Freeborn, senior editor at travel site The Broke Backpacker.
“You can take precautions and wait and see if things improve, but that can backfire,” he added. “Don’t be too greedy; accept the fact that this is a very solid position.”
Here’s what to know and how to take advantage.
‘Now is a good time to buy foreign currency’
Fj Jimenez | Moment | beautiful pictures
How much discount are travelers getting right now? Look at euro as an example.
The euro – the official currency of 19 of the 27 European Union members – has fallen in value around the last year and hit parity with the US dollar on July 13. for the first time since 2002. Parity means that two currencies have a 1:1 exchange rate.
Americans are still getting a discount of about 13% from a year before the market closed on Tuesday, albeit with a slight rebound from multi-decade lows.
“The current exchange rate is ridiculous,” said Charlie Leocha, president of Travelers United, an advocacy group, of the extent of the euro’s decline. “It makes everything in Europe that used to be expensive no longer expensive.”
But the strength of the dollar is broader than that of the euro.
For example, Nominal broad US dollar index measures the dollar’s appreciation against the currencies of the United States’ main trading partners, such as the Canadian dollar, British pound, Mexican peso, and Japanese yen, along with the euro. It is up more than 9% in the last year.
Furthermore, the index is around its highest point since 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 is 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.”
Why has the US dollar strengthened?
The strength of the dollar is mainly due to three factors, Hunter explained.
Perhaps the most consequential is The US Federal Reserve’s Interest Rate Raise Campaign (ie borrowing costs). This dynamic creates an incentive for international investors to hold money in dollar-based assets because they can generally earn higher returns, says Hunter.
The dollar could be stronger, but it could fall again.
Andrew Hunter
Senior US economist at Capital Economics
Moreover, the spike in oil prices this year hurts growth prospects in some developed countries (especially in Europe) compared to the US. safe haven assets like the US dollar.
While the US dollar is likely to stay strong for another six months or so, it is likely to be at or near a peak against other major currencies due to prevailing economic dynamics, Hunter said – with the caveat that currency moves are notoriously difficult to predict.
“You always have uncertainty about what’s going to happen in the future,” he added. “The dollar could be stronger, but it could fall again.”
Pay in advance to lock in a low exchange rate
Row Houses on Weissgerbergasse in Nuremberg, Germany.
Sakchai Vongsasiripat | Moment | beautiful pictures
Of course, this is not all to say that Americans will reap the financial rewards around the world.
According to travel experts, travelers who are 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, car or other service instead of deferring expenses.
This is especially worthwhile for those with a trip away for at least three months, says Leocha.
“You can pay upfront, and sometimes you get a discount when you pay upfront – so you get discounts and low exchange rates,” he said.
Note: In some cases, you may owe additional foreign transaction fees when making purchases with a credit card abroad. However, some travel cards eliminate these fees, often up to 3% of the purchase price, says Leocha.
Fees may depend on where the headquarters of the company you are dealing with is located. Leocha says it won’t charge a foreign transaction fee if the purchase is made through a US third-party organization like Expedia, but will typically charge a fee if booked directly through a foreign entity such as an actual hotel. .
When to convert cash for a trip abroad
Travelers can also convert cash before a trip, but usually only do so if the trip lasts several months, according to travel experts.
That’s because vendors like banks often offer less generous exchange rates – meaning customers could be better served by waiting until they arrive in their destination country and make a purchase. by credit card, especially if it doesn’t charge a foreign transaction fee.
While abroad, merchants may offer travelers the choice of purchasing “with or without conversion” or by some similarly worded prompt. Traveler should refuse that conversion offer — meaning they should choose to do the transaction in the target currency instead of converting that price into dollars — to get the best exchange rate, experts say.
Travelers who want to convert to cash can protect their exchange rate bets by converting half of their estimated spend now and waiting until later (or when they arrive) to conceal the rest, Freeborn said.
