Glowimages | Glowimages | Getty Images
It’s a superb time to be an American traveling abroad.
The worth of the U.S. dollar has been at its strongest in years relative to many major global currencies of late— meaning travelers should buy more overseas than within the recent past.
Put one other way, Americans are effectively getting a reduction on hotels, automotive rentals, tours and other goods and services denominated in lots of foreign exchange.
However it’s unclear how long the nice times will last. Some may wonder: Should I act now to lock in a good exchange rate?
More from Personal Finance:
Airlines are scuffling with lost and delayed bags
These 10 U.S. real estate markets are cooling the fastest
Distant work could also be an unlikely ally in Federal Reserve’s inflation fight
“I’d pull the trigger now,” said Aiden Freeborn, senior editor at travel site The Broke Backpacker.
“You would hedge and wait to see if things improve, but that might backfire,” he added. “Do not be too greedy; accept the very fact this can be a very strong position.”
Here’s what to know and find out how to make the most.
‘Now could be a superb time to purchase foreign currency’
F.j. Jimenez | Moment | Getty Images
Just how much of a reduction are travelers getting at once? Let us take a look at the euro for example.
The euro — the official currency for 19 of the 27 European Union members — has been falling in value over the past yr or so and hit parity with the U.S. dollar on July 13, for the primary time since 2002. Parity means the 2 currencies had a 1:1 exchange rate.
Americans were still getting a roughly 13% discount from a yr ago as of market close on Tuesday, despite a slight rebound off that multi-decade low.
“The exchange rate at once is ridiculous,” Charlie Leocha, chairman of Travelers United, an advocacy group, said of the euro’s depressed level. “It makes every little thing in Europe that was once expensive not that expensive.”
However the dollar’s strength is broader than simply the euro.
For instance, the Nominal Broad U.S. Dollar Index gauges the dollar’s appreciation relative to currencies of the U.S.’ principal trading partners, just like the Canadian dollar, British pound, Mexican peso and Japanese yen along with the euro. It’s up greater than 9% within the last yr.
Further, the index is around its highest point dating to no less than 1973, based on 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 because of the Covid-19 pandemic.
“I feel the massive picture is, now could be probably a superb time to go abroad,” Hunter said. “Now could be a superb time to purchase foreign currency, mainly.”
Why the U.S. dollar has strengthened
The strength of the dollar is basically attributable to a few aspects, Hunter explained.
Perhaps essentially the most consequential is the U.S. Federal Reserve’s campaign to boost rates of interest (i.e., borrowing costs). The central bank has been more aggressive than others all over the world, Hunter said; the dynamic creates an incentive for international investors to maintain funds in dollar-based assets since they’ll generally earn a better return.
The dollar could strengthen even further, nevertheless it could fall back.
senior U.S. economist at Capital Economics
Further, a surge in oil prices this yr hurt the expansion prospects in some developed countries (especially in Europe) relative to the U.S. And economic uncertainty (because of aspects like inflation and recession fears and the war in Ukraine) has led investors to flock to safe-haven assets just like the U.S. dollar.
While the U.S. dollar will likely remain strong for one more six months or so, it’s likely at or near its peak relative to other major currencies given prevailing economic dynamics, Hunter said — with the caveat that currency moves are notoriously difficult to predict.
“You’ve got all the time got the uncertainty of what is going to occur in the longer term,” he added. “The dollar could strengthen even further, nevertheless it could fall back.”
Pay prematurely to lock in low exchange rates
Row Houses on Weissgerbergasse in Nuremberg, Germany.
Sakchai Vongsasiripat | Moment | Getty Images
In fact, this is not all to say Americans will reap financial rewards the world over.
But tourists planning or considering a visit to a rustic where the dollar is historically strong can lock in that favorable exchange rate by booking a hotel, rental automotive or other service today as an alternative of deferring the associated fee, based on travel experts.
This is particularly worthwhile for those with a visit no less than three months away, Leocha said.
“You possibly can pay prematurely, and sometimes you get a reduction for paying prematurely — so that you get a reduction and the low exchange rate,” he said.
Remember: In some cases, it’s possible you’ll owe a further foreign-transaction fee for a credit-card purchase overseas. Some travel cards eliminate these fees, though, which generally amount to three% of the acquisition price, Leocha said.
Fees may rely upon where the corporate you are transacting with is predicated. There’s not a foreign transaction fee if the acquisition is thru a third-party U.S. entity like Expedia, but there often is one if booked directly through a foreign entity just like the actual hotel, Leocha said.
Travelers also can convert money ahead of a visit but should generally only accomplish that if the trip is several months away, based on travel experts.
That is because providers like banks typically offer less generous exchange rates — meaning a customer could also be higher served by waiting until arriving at their destination country and making purchases with a bank card, especially if it doesn’t carry a foreign transaction fee.
While abroad, merchants may offer travelers the selection of creating a purchase order “with or without conversion” or based on some similarly worded prompt. Travelers should decline that conversion offer — meaning they need to opt to do the transaction within the destination currency as an alternative of convert that price into dollars —as a way to get the most effective exchange rate, experts said.
Travelers who’d prefer to convert to money can hedge their exchange-rate bets by converting half their estimated expenditure now and waiting until later (or their arrival) to covert the remaining, Freeborn said.