The dollar and the euro are equal – what this means for travel in Europe

As the US dollar continues to rally against foreign currencies, Americans’ vacation budgets are getting a welcome boost.

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IIf it’s been a while since you’ve traveled to Europe, you might be in for a welcome exchange rate surprise. Over the past year, the dollar-euro exchange rate has continued to decline. And on Tuesday, one euro was valued at the equivalent of one US dollar, marking the first time the two currencies had reached parity since December 2002.

At press time, the Euro was trading at the exact value of $1.003, so technically a fraction of a penny from parity – and it could still go up and down a bit in the hours and days to come then. that foreign exchange markets respond to constantly changing economic factors. . But a year ago, the dollar was hovering at $1.20 against the euro.

The fact that the dollar is so much stronger today against the euro should be a welcome relief for Americans heading to Europe, helping to offset the costs of skyrocketing airfares (which have been pushed higher by rising oil prices and staff shortages), and inflation which is impacting the price of everything from food to services on both sides of the pond. It could also help counter concerns that American travelers may have about reported chaos and crowds at airports such as London Heathrow and Amsterdam Schiphol International Airport.

The euro area includes 19 countries of the European Union: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain. On Tuesday, EU finance ministers officially approved Croatia to become the 20th member to adopt the euro as its currency in early 2023.

The dollar is also gaining ground against other currencies, including the pound sterling, which fell to a value of $1.185 on Tuesday, the lowest since March 2020, The Guardian reported. The British newspaper cited political uncertainty amid the race to replace Boris Johnson as prime minister following Johnson’s resignation and “economic gloom” as factors weighing on the pound.

For American travelers, the majority of travel to Europe over the past two decades has come with a “tax” on the exchange rate – American travelers have become accustomed to calculating 20, 30, 40, even 50 to 60 % extra above the euro rate charged for their hotel room, latte, croissant, glass of wine, or admission to the museum. What appears on our US bank statements, of course, is the dollar equivalent of what was spent in euros. For many, this added cost can serve as a rather brutal vacation reality check after a stay abroad.

Even slight variations in the exchange rate can make a big difference in the bottom line of your holiday. For example, consider your hotel stay abroad, usually one of the largest budget items (if not the largest budget item) for any trip. One of our new favorite establishments in Paris, the Hotel Paradiso, offers rooms from 176 euros per night. A year ago (at an exchange rate of $1.20 to one euro) it would have been $211 per night. Today, that translates to, well, $176 per night.

And the dollar could continue its bullish trajectory. Currency forecasting is difficult given all the complex (and often rather volatile) global economic factors at play, but Bloomberg reported on July 6 that traders are increasingly confident that the euro will soon fall below the parity with the dollar.

The dollar is rising primarily because the Federal Reserve, in its effort to quell the highest US inflation in four decades, is raising interest rates more aggressively than other countries’ central banks.

Also contributing to the attractiveness of the dollar, notes Rubeela Farooqi of High Frequency Economics, is that despite worries about a possible recession in the United States, “the American economy is on stronger footing compared to Europe. “.

Associated Press contributed reporting. This story was originally published in May 2022 and was updated on July 12, 2022 to include current information.

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