When to buy euros, other currency for a trip abroad

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It’s a good time to be an American traveling abroad.

The value of the U.S. dollar has been at its strongest in years relative to many major global currencies of late— meaning travelers can buy more overseas than in the recent past.

Put another way, Americans are effectively getting a discount on hotels, car rentals, tours and other goods and services denominated in many foreign currencies.

But it’s unclear how long the good times will last. Some may wonder: Should I act now to lock in a favorable exchange rate?

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“I’d pull the trigger now,” said Aiden Freeborn, senior editor at travel site The Broke Backpacker.

“You could hedge and wait to see if things improve, but that could backfire,” he added. “Don’t be too greedy; accept the fact this is a very strong position.”

Here’s what to know and how to take advantage.

‘Now is a good time to buy foreign currency’

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For example, the Nominal Broad U.S. Dollar Index gauges the dollar’s appreciation relative to currencies of the U.S.’ main trading partners, like the Canadian dollar, British pound, Mexican peso and Japanese yen in addition to the euro. It’s up more than 9% in the last year.

Further, the index is around its highest point dating to at least 1973, according to 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 due to the Covid-19 pandemic.

“I think the big picture is, now is probably a good time to go abroad,” Hunter said. “Now is a good time to buy foreign currency, basically.”

Why the U.S. dollar has strengthened

The dollar could strengthen even further, but it could fall back.

Andrew Hunter

senior U.S. economist at Capital Economics

Further, a surge in oil prices this year hurt the growth prospects in some developed countries (especially in Europe) relative to the U.S. And economic uncertainty (due to factors like inflation and recession fears and the war in Ukraine) has led investors to flock to safe-haven assets like the U.S. dollar.

While the U.S. dollar will likely remain strong for another 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 always got the uncertainty of what will happen in the future,” he added. “The dollar could strengthen even further, but it could fall back.”

Pay in advance to lock in low exchange rates

Row Houses on Weissgerbergasse in Nuremberg, Germany.

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Of course, this isn’t all to say Americans will reap financial rewards the world over.

But tourists planning or considering a trip to a country where the dollar is historically strong can lock in that favorable exchange rate by booking a hotel, rental car or other service today instead of deferring the cost, according to travel experts.

This is especially worthwhile for those with a trip at least three months away, Leocha said.

“You can pay in advance, and sometimes you get a discount for paying in advance — so you get a discount and the low exchange rate,” he said.

Be aware: In some cases, you may owe an additional foreign-transaction fee for a credit-card purchase overseas. Some travel cards eliminate these fees, though, which generally amount to 3% of the purchase price, Leocha said.

Fees may depend on where the company you’re transacting with is based. There isn’t a foreign transaction fee if the purchase is through a third-party U.S. entity like Expedia, but there often is one if booked directly through a foreign entity like the actual hotel, Leocha said.

When to convert cash for a trip abroad



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Source: https://www.cnbc.com/2022/07/24/when-to-buy-euros-other-currency-for-a-trip-abroad.html

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