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How Does the Exchange Rate Affect a Trip's Cost?The typical question:
The dollar is hardly "falling". It had been on a slowly rising bubble from early in the year ('01) until July. It's been drifting slowly down for the last few weeks. It's now just about where it was at the beginning of the year. Hardly a fall. Just the normal day-to-day, month to month variations. But the question could just as well be phrased:
Exxchange rates in most cases, are almost meaningless. Typically, exachange rates fluctuate 5-10%, sometime up, sometimes down over long periods of time. Take a look at the exchange rate record of the euro since the beginning of 1999 when it first came into being. In contrast, inflation in much of Europe has, at times, run over 15 or 20%. Worse, in isolated cases hotelier greed has increased hotel rates even faster than inflation. Greed and inflation have influenced prices of travel far more than exchange rates. When Ed first went to Europe the dollar bought "only" 625 lire. Now it buys over 2000. Whoopee! He could stay in a 5-star hotel for about $25 back then. So you'd think that hotel room should only cost $8 now? Heck no! An equivalent 5-star hotel for the same commercial rate runs over $200. Inflation over the last years has made touring in Europe far more expensive than it once was. Exchange rates have had surprisingly little to do with it, relatively. One needs to be looking at what a month's salary (or a month's pension) will buy in Europe, as opposed to the meaningless exchange rates. We're equally amused by attempts to forecast, or understand, whether rates will go up or down. We've just answered a question about whether we thought the exhange rate would be, roughly, stable over the next several months. While we think so, we offered that we'd not be answering questions for free if we really knew the answer to such questions. Rather, we'd be awaiting delivery of our yacht to the dock in front of our Riviera beachfront mansion! Fact is, large exchange rate changes are far more influenced by things like wars, assasinations, and market collapses than by Ed and Julie's opinions. Otherwise they tend to drift in roughly the same range, influenced up or down by such things as inflation trends and the market's guess as to planned government economic actions. We're occasionally asked our opinion of exchange rate trends so that a prospective traveler might make an investment in European currency hoping to make a profit before his trip, or at least protecting what he perceives to be a favorable exchange rate. Unless one has over a million dollars to invest (the minimum to get a favorable exchange rate) it's more likely that conversion and transaction fees will more than eat up any gain. Not to mention the risk of dabbling in a marketplace about which most of us have little knowledge. So, our advice? Don't worry about exchange rates. If you're planning a trip for next year, assume the hotels and restaurants will raise their prices. Whatever happens to the exchange rate between now and then is likely to be smaller than the impact on your travel budget of such price increases. Other
Financial Information to Help Plan Your Trip to Europe Complete
Index of Ed and Julie's Our Favorites Trip Tips and Tools Copyright © 1997-2001 E.J.
Gehrlein Traveling
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