Time for that Euro vacay? The euro and the dollar will soon be equal for the first time in 20 years, but about that flight …
If you are one of the many Americans excited to start traveling again this summer, you might want to consider Europe. Ever heard of it?
Even if historic ruins, vibrant culture, and good food aren’t your thing, the continent’s rapidly devaluing euro, paired with a surging dollar, means that now is the most affordable time for Americans to travel to Europe in decades, and soon enough the dollar might even be worth more than the euro.
“We do think the euro will be below parity within one month,” Erik Nelson, macro strategist with investment bank Wells Fargo, told Bloomberg this week, highlighting that different expectations of economic growth in Europe and the U.S. were pushing the two economies’ currencies closer to having the same value.
“From a growth perspective, the U.S. is in a much better position than the eurozone. The eurozone is essentially close to stagnating at this point whereas the U.S. is still growing at a steady clip,” Nelson said.
Should the euro reach parity with the dollar, or even go below it, it would be for the first time since November 2002.
There is a significant catch, though.
About that airfare
One euro is now worth around $1.04, but with the currency poised to fall even further soon, it will benefit the huge number of Americans planning on traveling to Europe this summer. Europe-bound travel from the U.S. is expected to be 600% higher than last year, according to a report by insurance company Allianz.
American travelers headed to Europe this year might benefit from a cheaper time once they arrive, but expensive plane tickets might mean that you shouldn’t expect your budget to change too much.
The rise in demand for travel to Europe, combined with fuel prices 128% higher than a year ago, is leading to some eye-watering airfare prices this summer. Airfare prices in the U.S. have gone up 47% over the past year, and that’s only for domestic flights. In 2019, bargain hunters could find a New York City-to-Paris round-trip ticket for as little as $300, while round-trip flights this year are costing well over $1,000.
The euro’s steep decline over the past few months might help Americans’ budgets, however, with the currency having fallen in value relative to the dollar by more than 9% since January. The war in Ukraine has been hammering the euro’s value since March, while simultaneously lifting the dollar.
Other factors since the outbreak of the war have contributed to the euro’s declining strength, including a growing trade deficit in the eurozone due to reduced manufacturing capacity and high energy costs, the European Central Bank raising interest rates for the first time in over a decade to combat inflation, and concerns of a looming debt crisis in Italy, Spain, and Greece.
Meanwhile, the dollar has soared to new heights over the past few months, rising 15% over the past year according to the U.S. dollar index, bolstered by its status as a global “safe-haven currency” in times of market uncertainty, with investors worldwide flocking to dollar-denominated investments since the war began.
It is unclear if the U.S. dollar will be able to hold onto its gains for much longer, as the dollar’s role as a safe haven for investors means the forces upending markets right now are helping buoy it, but that could change quickly.
In May, Goldman Sachs analysts wrote the dollar was “highly overvalued,” and in the event of a recession happening within the next year, something economists are becoming increasingly concerned about, its gains could be erased.
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