Strong U.S. Dollar Is Rocket Fuel for International Travel

There’s no better time to have a touch of the wanderlust.

A couple weeks ago, we discussed the various ways another Federal Reserve interest-rate hike might hit Americans’ pockets. While it’s mostly negative for just about every big-ticket purchase you could think of (homes and cars among them), there’s one big expenditure that’s becoming relatively cheaper as a result:

Travel. Well … international travel, to be specific.

If you’ve been itching to cram yourself into a plane and out of the country, now would seem to be the time, with the dollar soaring in worth versus other global currencies. So read on while we talk about recent travel trends, and how to make your dollar stretch overseas.

The Tea

“Since the U.S. Fed is more aggressive than other central banks, the U.S. dollar has gained against most other major currencies,” Jon Maier, Chief Investment Officer at ETF provider Global X, told Young & The Invested shortly after the Fed’s latest rate hike. “This provides a cheaper way for Americans to travel abroad, be it Europe or Asia.”

And according to Bank of America, that’s exactly what Americans have been doing—and data suggests they’ll continue logging more frequent-flyer miles.

BofA Global Research, in a recent Consumer Morsel, said that total in-person credit and debit card spending by U.S. consumers in foreign countries—a useful indicator of international travel habits—rocketed higher during the summer months. And it says recent data from the Conference Board survey suggests international travel will continue to be robust:

“In August, 17.9% of respondents intended to take a vacation to a foreign country within six months, up 3.6 percentage points compared with August 2021 and well above pre-pandemic response levels,” BofA says. “By comparison, 44% of respondents intended to vacation within the U.S. in the next six months, roughly in line with the prior year but still elevated compared with historical levels.”

Translation: Travel in general is back, and international travel is back with a vengeance.

But if you want to stretch your legs and move about the globe in a money-smart way, we suggest letting the dollar be your guide.

The Take

Before you start throwing darts at a globe to determine your vacation locale, understand that the U.S. dollar’s recent dominance hasn’t been the same across all currencies.

The table below (data courtesy of X-Rates.com) compares U.S. exchange rates versus 16 other international currencies, and as you can see, the purchasing power of the dollar has gained a lot of ground in some areas of the world … and not so much (or not at all) in others.

Japan and Europe, for instance, have become much cheaper over the past 12 months. But if you want to hop south of the border—or south of the equator, for that matter—the dollar won’t buy you as much mole poblano or feijoada as it did a year ago.

Travel guide Fodors offers up a few more tips on how to get the most travel bang for the American buck over the next few months:

• Buy up souvenirs and big-ticket items: Americans get something of a double bonus if they vacation in Europe. For one, many actual goods you buy will be cheaper than you can find them in the U.S. But you can also save up to 20% by asking for Value Added Tax (VAT) refunds on certain luxury purchases.
• Book what you can now: Like we mentioned above: Americans are already telegraphing their interest in traveling abroad. Booking well ahead of time will ensure you’re not shut out of the fun—and if you’re paying up front, you can lock in the favorable currency rates now. (But try to make sure whatever you spend on is refundable if at all possible.)
• Upgrade: Luxury is considered “recession-proof”—rich people will always have spending cash, so luxury accommodations are likely to remain expensive, even with more favorable currency rates. So instead of shooting for a five-star experience, you’ll probably have a better time stretching your dollar by upgrading your accommodations at solid three- and four-star hotels.
• Flights don’t count: While everything might be cheaper once you get to your destination, the actual flight in and out is going to be booked in U.S. dollars. So don’t go into your flight expecting to find currency savings there.

Have a great rest of your weekend, and bon voyage!

Riley & Kyle

Young & The Invested

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On the date of publication, Kyle Woodley did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.