Strong dollar a good sign for Americans with travel plans
PITTSBURGH — A hotel room in Paris priced at 150 euros during the holiday season of 2013 would have cost American travelers $205. But the same hotel room this holiday season would cost Americans only about $160.
Americans traveling overseas are getting more bang for their buck these days when it comes to the spending power of the venerable greenback against traditional powerhouse currencies like the British pound and euro.
The lingering effects of the British government deciding to leave the European Union and the potential for further erosion of the eurozone has knocked the once-dominant euro to its lowest point in more than a decade. Meanwhile, the Federal Reserve Board increased U.S. interest rates this past week, which is likely to give the dollar even more weight against other currencies.
“The dollar has been strong for a couple of years, but the exchange rate this year gives American tourists lots of spending power overseas this holiday season,” said Bill Adams, senior international economist at PNC Bank. “The strong dollar is not just a European story. “The dollar’s purchasing power also is stronger in other countries such as Mexico, Canada, Japan and China. Exchange rates have really moved in American tourists’ favor in the last few years.”
According to PNC Bank’s economics division, the U.S. dollar has appreciated 23 percent against the euro since 2011, when the exchange rate was $1.30 per euro. The exchange rate today is $1.06 per euro.
The Canadian dollar also has fallen 22 percent against the U.S. dollar since 2011 when 1 U.S. dollar could buy 1.03 Canadian dollars. Today, $1 can buy 1.31 Canadian dollars.
The dollar’s exchange rate appreciation against the Japanese yen has been even more dramatic since 2011 — 46 percent. The rate was 78 yen for $1 in 2011; today the exchange rate for Japanese yen is 115 yen for $1.
“Travelers who exchange 100 U.S. dollars for yen today would get about 3,500 yen more than they did in 2011,” Adams said.
For years, the U.S. dollar had been steadily weakening against other major currencies as the country’s national debt continued to rise and its interest rates fell.
But the dollar began picking up steam in 2015 in anticipation of the British government leaving the European Union. More political turmoil is expected to affect the euro now that Italy’s prime minister submitted his resignation after a “no” vote on his constitutional reform proposals.
Financial adviser Paul Brahim, chairman and CEO of BPU Investment Management, Downtown, believes the dollar has rallied recently in part due to the Trump effect of investors expecting a looser regulatory environment and lower corporate tax rates, in addition to the European Union turmoil.
And money tends to flow to currencies that pay the highest interest.
“Money moves from uncertainty to certainty. And right now there is so much uncertainty in the Eurozone, those dollars are coming here,” Brahim said. “A lot of people are betting on the growth of the U.S. economy and particularly manufacturing.”
Those trends help travelers, but it’s not all good for the American economy when the dollar strengthens against other currencies.
“On the flip side, goods and services we export to those countries cost more in those countries,” Brahim said. “If we want to grow manufacturing and export more, we have to cheapen the dollar eventually.