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Time Your Travel Abroad To The Exchange Rate

Author: Michael Jackson

In January 2015, an already strong U.S. dollar hit an 11-year high against other major currencies. For U.S. travelers, this is good news: The recent changes in the relative values of the U.S. dollar, the euro and the British pound mean that your tourist dollar will go further. Travelers in late January, for instance, paid $1.16 per euro, the lowest the value of the euro has dipped in many years. As recently as September 2014 they would have paid $1.30. A British pound, which now costs about $1.50, would have cost $1.63 in September 2014. (See Currency Exchange: Floating Rate Vs. Fixed Rate for more on exchange rates.)

This shift in exchange rates isn't enough to pay for your flight (unless you plan major purchases, such as real estate or a very expensive car). But it will increase your purchasing power – by more than 10%, as of now. In other words, that nice 100-euro dinner in Rome in January costs $116, instead of the $130 it would have cost in September. (Currency exchange rates current as of January 20, 2015.)

Why the Surge?

These changes in the exchange rate reflect currency traders' appreciation of a strengthening U.S. economy, compared to a stagnating European economy. Indications are that the European currencies will continue to deteriorate against the U.S. dollar for the near future, with scary talk of triple dip recession in the air there, while the U.S. economy steadily improves. (For more information on the world's major currencies, see Top 8 Most Tradable Currencies.)

How It Makes a Difference

Here are a few examples of the impact of a strong dollar:

• Travel to European destinations will cost Americans less, or you'll be able to upgrade your experience – fancier hotel rooms, better meals – for the same budget.

• For U.S. retirees, a strong dollar has made Mexico and some other emerging market economies attractive places to live because their assets and incomes are in dollars while most of their living expenses are in weaker local currencies. This only improves as the dollar strengthens.

• Canada is a great deal for Americans right now, and not just because Canadians are so nice and speak English, mostly. Oil is an important export commodity for Canada and the precipitous fall in oil prices, from around $102 per barrel in May 2014 to about $47 in January 2015, pushed the Canadian dollar down to about US$0.83, meaning that you get about C$1.21 for each U.S. dollar. As a result, some American students in Canada's excellent universities recently saw their tuition and fees actually decline in U.S. dollar terms from one semester to the next.

• The Russian ruble has been in the news recently as a result of the 2014 Western economic sanctions and the falling price of oil, Russia's economic mainstay. The ruble has lost about half its value in the past six months so now could be a good time to go to Russia – except that there is little in the way of manufactured goods to buy, and the hospitality industry will have adjusted its rates or be billing in dollars anyway.

The Downside

Of course, if you're a businessperson in the United States, the strengthening dollar has its downside: While other countries' products and travel abroad become cheaper for Americans, any U.S. business that depends on exporting its goods may be at a competitive disadvantage. And the U.S. tourism industry suffers when everything from hotel rooms to restaurant meals is more expensive for foreign visitors.

The Bottom Line

The current strength of the U.S. dollar makes it an attractive time for U.S. travelers to go abroad. Use online res such as X-Rates to track exchange rates. Pay attention to how you exchange currency: The rates and fees will differ, depending on whether you use airport currency exchange facilities or local ATMs or use a U.S. credit card to make overseas purchases. Shop around, because fees can eat up your dollar advantage. It is generally a good strategy to buy enough foreign currency for taxis and other immediate use before you go, and then use a credit card (particularly one that has no foreign transaction fee) or get additional funds you need at a local ATM or bank. (For more, see The Best Places To Exchange Currency and Top Credit Cards With No Foreign Transaction Fee.)

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