If it’s been a while since you’ve traveled to Europe, you could be in for a welcome exchange-rate surprise. Over the past year, the dollar-euro conversion rate has been steadily dropping. And on Tuesday, one euro was valued at the equivalent of one U.S. dollar, marking the first time the two currencies reached parity since December 2002.
As of press time, the euro was trading at the exact value of $1.003, so technically a fraction of a penny from parity—and it could still climb and fall a bit in the coming hours and days as currency markets respond to constantly evolving economic factors. But one year ago, the dollar was hovering at $1.20 against the euro.
The fact that the dollar is so much stronger today against the euro should serve as welcome relief for Americans heading to Europe, helping to offset the costs of skyrocketing airfares (which have been pushed up by a rise in oil prices and staffing shortages), and of inflation that is impacting the price of everything from food to services on both sides of the pond. It might also help to counter concerns U.S. travelers may have about the chaos and crowds being reported at airports such as London’s Heathrow and Amsterdam Schiphol International Airport.
The eurozone consists of 19 countries in the European Union: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain. On Tuesday, EU finance ministers officially approved Croatia to become the 20th member to adopt the euro as its currency at the start of 2023.
The dollar is also gaining ground against other currencies, including the British pound, which dropped to a value of $1.185 on Tuesday, the lowest since March 2020, The Guardian reported. The British newspaper cited political uncertainty amid the race to replace Boris Johnson as prime minister following Johnson’s resignation and “economic gloom” as factors that are weighing the pound down.
For U.S. travelers, the majority of travel in Europe over the past two decades has come with an exchange rate “tax”—U.S. travelers have grown accustomed to calculating an additional 20, 30, 40, or even 50 to 60 percent above the rate in euros being charged for their hotel room, café au lait, croissant, glass of vino, or museum admissions. What shows up on our bank statements back in the United States, of course, is the dollar equivalent of what was spent in euros. For many that extra cost can serve as a rather brutal vacation reality check after time spent abroad.
Even slight exchange rate changes can make a big difference in a vacation bottom line. For instance, consider your hotel stay abroad, typically one of the biggest budget items (if not the biggest budget item) for any trip. One of our favorite new properties in Paris, Hotel Paradiso, offers guest rooms starting at 176 euros per night. One year ago (at an exchange rate of $1.20 to one euro), that would have been $211 per night. Today, that translates into, well, $176 per night.
And the dollar could continue on its upward trajectory. Currency forecasting is challenging given all the complex (and often rather volatile) global economic factors that are in play, but Bloomberg reported on July 6 that traders are increasingly convinced that the euro will soon drop below parity with the dollar.
The dollar is climbing mainly because the Federal Reserve, in its effort to cool the hottest U.S. inflation in four decades, is raising interest rates more aggressively than central banks in other countries.
Also contributing to the dollar’s appeal, notes Rubeela Farooqi of High Frequency Economics, is that despite concern about a potential recession in the United States, “the U.S. economy is on firmer footing compared to Europe.”
Associated Press contributed reporting. This story was originally published in May 2022, and was updated on July 12, 2022, to include current information.