If one can justify talking about an upside to the financial crisis, it’s that the dollar has strengthened considerably against both the euro and the British pound recently. That translates to this: Europe has become cheaper for Americans than it was even a month ago.
In August, Grant reported on the dollar’s rally. Since then, it’s rallied more.
As I write this, 1 euro is equal to $1.35. As recently as this summer the euro had topped out at around $1.62.
The pound had also risen to nearly a 1:2 ration to the dollar this summer, and was right around $1.90 to the pound when I was last in London in August. Now, one pound is equal to $1.70.
Both are significant drops, though in real life it’s not like the difference means you can tack on an extra night or two to your European stay.
Still, after a while you notice it. I use the euro every day, and it’s nice hitting the ATM and getting a little extra (or to be more precise, not having as much come out of my American checking account).
The dollar stands to even grow stronger against these currencies, and here’s why: Europe is getting its ass kicked by the financial crisis.
The US housing boom was nothing compared to the value real estate appreciated in places like Ireland, Spain and the UK. Europe is going to follow us into a recession, and will be forced to cut interest rates to stimulate economic growth, which drives down the value of their currency.
But here’s the catch: Europe has to cut much more than the US.
The US’ interest rates are pretty much as low as they can get (1.50%), while the European Central Bank’s key rate is still up there — 3.75%. Since Europe is lagging behind the US, it’ll probably have to continue reducing its interest rates at the same time that the US stops cutting. That means the dollar is going to continue appreciating against the euro, pound and other currencies.
I’m careful to call that good news, given all the panic in the financial markets these days. But for American travelers heading to Europe this fall on long-planned trips, it’s hard to argue that it isn’t.