The Euro is about as low relative to the U.S. dollar as it’s been all year, as policymakers and bankers alike fret that the shared currency masks deep sovereign debt problems and that the European economy is about to slide into recession once again.
This is all pretty grim stuff, but experts say it could have a silver lining for people planning a vacation next year: European travel might be cheaper. “You’ll be able to afford coffee in Paris for a change,” predicts Barry Bosworth, an economist at the Brookings Institution.
The savings go beyond just coffee, though. “Any sort of market where a large portion of the market is domestic, the exchange rate advantage for foreigners will show up right away,” he says. Here are some guidelines for making your travel dollars go far in Europe.
The bad news: airfares.
Getting to London or Lisbon won’t be any less expensive. Even if you’re flying a European carrier, if you buy your ticket in the U.S., it will be priced in dollars. If you’re flying from one city to another within Europe, you could see a little bit of a break thanks to a favorable exchange rate, although George Hamlin, president of Hamlin Transportation Consulting, says airlines might raise ticket prices in anticipation of more American tourists. “If you’re pricing in euros and it slackens a little, that may cause the carrier to want to run the price up a bit,” he says. Potential savings also might be canceled out by a higher fuel surcharge. Jet fuel is priced in dollars on the global market, and it’s risen sharply in the past year.
The good news: almost everything else.
“Dining, local transportation, renting a car, going to a theater or nightclub, taking a train — you feel these savings immediately,” says Henry Harteveldt, travel industry analyst at Atmosphere Research Group.
Car rental companies aren’t going to increase their prices, so visitors spending dollars can drive around for less. “They price for the needs of European businesspeople,” Bosworth says. The same holds true for train travel — though Eurail passes, which are priced in dollars, are the exception.
Hotel rates are another place where American travelers are likely to see immediate savings, says Harteveldt. If the hotel clerk offers to charge you in dollars, be wary, since the exchange rate they give you might not be as good as the one you’d get from your credit card company if the transaction was processed in euros, he says.
Playing the exchange rate
Keep in mind that the price you see when you book the room and the price you’ll actually pay when you check out could change. Depending on which way the euro moves between the reservation and your vacation, this could help or hurt you. If you believe the euro will rise, it would be prudent to pre-pay to lock in the more favorable rate. But if the Euro falls further, wait until you check out to pay or you’ll be locking yourself out of greater savings.
So which way is it going to go? That’s the $64,000 question, of course. “There are some strong reasons to think that the U.S. dollar could continue to strengthen over the next six months or so,” says Joshua Raymond, chief market strategist at trading firm City Index in London. He says the European Union‘s central bank is trying to help the Eurozone economy by lowering interest rates, which weakens the Euro.
Non-euro European countries
When it comes to countries that don’t use the euro, like the United Kingdom and Switzerland, Raymond says their exchange rates will be indirectly affected by the euro anyway. The British economy is so closely tied to the rest of Europe that a recession-led plummeting of the euro’s value would likely drag down the pound.
The Swiss franc is a bit murkier. Investors love the currency, and if the euro is volatile or sinking, the Swiss franc looks like a more stable alternative. All of those investors clamoring for francs drive up their price relative to other currencies, which translates to bad news for travelers. But Raymond says the effect of a rising franc might be muted by intervention from the Swiss central bank. (Switzerland doesn’t want its currency so high that people and companies in other countries are less willing to buy its exports.)
One final point: If you’re thinking of taking advantage of a sagging euro with a trip next year, consider applying for a credit card that does not charge foreign transaction fees, which add an average of 3% to all your purchases.