As Americans continue to travel in large numbers this summer, many are faced with rising costs for flights and hotel accommodations. One group in particular, however, benefited from a slight reduction: those traveling to Europe and Great Britain.
On Tuesday, the value of the euro fell to its lowest level in 20 years at an exchange rate of around $1.02, from around $1.18 a year ago. Many experts believe the fall will continue, possibly even reaching parity – $1.0 – at which point a dollar could trade for a euro. The British pound is also down, at a value of $1.19.
An exchange rate of $1.02 means it will cost Americans $102 to get 100 euros, up from $118 a year ago. This increased purchasing power has real ramifications for Americans as they leave the country and start spending on food, hotels, tours and souvenirs. A year ago, a 30 euro meal cost around 35 dollars, compared to 31 dollars today. Going back to 2008, a meal at the same price was $47.
With US inflation up 8.6% in May from the same month last year, coupled with a strong dollar, Europe appears to be one of the few places Americans can find some relief from the price. And by directing their spending abroad, these travelers are in fact — whether they realize it or not — portion reduce high inflation in their home country (even if the impact would only be marginal).
Although a rising dollar is a boon for travelers, they still face rising costs from global inflationary pressures – a record 8.6% year-over-year in May in countries that use the euro, as in the United States. Just like in the United States, inflation in Europe is driven by energy costs, which increased by 41.9% compared to the previous year, and food prices, which increased by 8, 9% over the same period.
The change in the exchange rate was driven by the
rising interest rates — which made investments held in dollars more attractive, as well as concerns about the state of the European economy. While recession fears are also circulating in the United States, Europe’s exposure to the war in Ukraine and the energy crisis has spooked investors. With the European Central Bank expected to raise interest rates for the first time in 11 years later this month, some investors believe a
could make any rate hike short-lived.
And while the dollar has risen against the euro, its value against other currencies, like the peso and the Canadian dollar, hasn’t changed dramatically over the past year.
The relief is also limited given that, on the whole, Americans don’t travel abroad very often. According to a 2021 Pew Research poll, only 40% of Americans have been “out of the country” more than twice.
Still, for those venturing to places like Greece, France or Spain, the strong dollar should make splurging on this souvenir all the more tempting.