- On Tuesday, the euro's value against the US dollar fell to the lowest level since 2002.
- While the fall signals fears about the European economy, it's a boon for Americans traveling abroad.
- With global inflation pressures, however, these travelers can't fully escape rising prices.
As Americans continue to travel in high numbers this summer, many are confronting the rising costs of flights and hotel accommodations. One particular group has been experiencing a bit of a discount, however: those traveling to Europe and Great Britain.
On Tuesday, the value of the euro fell to a 20-year low to an exchange rate of roughly $1.02, down from approximately $1.18 a year ago. Many experts believe the fall will continue further, perhaps even reaching parity — $1.0 — at which point a dollar could be exchanged for a euro. The British pound is also down, at a value of $1.19.
An exchange rate of $1.02 means that it will cost Americans $102 to obtain 100 euros — versus $118 a year ago. This enhanced spending power has real ramifications for Americans when they leave the country and start spending on food, hotels, tours, and souvenirs. A year ago, a 30 euro meal cost about $35 dollars, vs $31 today. Going back to 2008, a meal at the same price cost $47.
With US inflation rising 8.6% in May compared to the same month last year, coupled with the strong dollar, Europe appears to be among the few places Americans can find some price relief. And by directing their spending overseas, these travelers are actually — whether they're aware of it or not — helping lower the elevated inflation in their home country (though the impact would only be marginal).
While a strengthening dollar is a benefit to travelers, they still face rising costs driven by worldwide inflationary pressures — a record-high 8.6% year-over-year in May in countries that use the euro, coincidentally the same as the US. Also like the US, Europe's inflation is driven by energy costs, which rose 41.9% from a year prior, and food prices, which rose 8.9% over the same period.
The shift in the exchange rate has been driven by the Federal Reserve raising interest rates — which has made investments held in dollars more attractive, as well as concerns about the state of the European economy. While recessionary fears are circling in the US as well, Europe's exposure to the war in Ukraine and the energy crisis have spooked investors. While the European Central Bank is expected to raise interest rates for the first time in 11 years later this month, some investors think a looming recession could make any rate hikes short-lived.
And while the dollar has risen against the euro, its value against other currencies — like the peso and Canadian dollar — hasn't changed dramatically over the past year.
The relief is also limited given that by and large, Americans don't travel abroad very often. Per a 2021 Pew Research poll, only 40% of Americans have been "out of the country" more than twice.
Still, for those who are venturing to the likes of Greece, France, or Spain, the strong dollar should make splurging on that souvenir all the more tempting.