USD woes ?
 

The recent US rate reduction is likely to have an impact on the USD.

Conventional wisdom says that it will weaken further in the longer term - thus strengthening US producers v imports.

But bad news for international travellers ?

Peter

could be, it seems to me the dollar dropped about 5-10 pct the last time there was a rate cut, and I don't think it was this high. Of course, there is the general drop in the stock market in a lot of places. May not be good for the USD -- but for international travellers, in general? or do you mean Americans who travel internationally? probably not good news

A lot depends on the relative levels of interest rates in different countries, and how attractive that makes a country for people wanting to park money, or as speculators.

Sorry

Yes I meant a declining USD could be bad news for US international travellers.

Might help with the upcoming elections, though !!!!


Peter

Well, seems since when I posted this the USD (then 1USD = 0.69030) has dropped to IUSD = 0.6725.

I don't see any real recovery until after the elections.

Peter

What do you think the elections has to do the with exchange rate? Please explain.

I think he means the politicians might want to offer "candies" to electors in an election year...like tax refunds, interest rate cuts,etc..

They may be valid or not economic moves, but the theory is no politian wants bad news that can be blamed on them during an election year.

There is also a psychological factor.
Traders don't like uncertainty.
The election removes uncertainty.
Perhaps an element of "it can't get any worse" ?


In the past it hasn't mattered too much who wins - the dollar has strengthened after the election.

As an example :

Reagan :
6 feb 1984 GBP1 = USD 1.43
30 nov 1984 GBP1 = USD 1.31


Clinton :
6 feb 1992 GBP1 = USD 1.82
30 nov 1992 GBP1 = USD 1.51


Bush :
6 feb 2000 GBP1 = USD 1.59
30 nov 2000 GBP1 = USD 1.41

The USD weakened after the Bush Jnr re-election !

Peter





Peter


Peter

I don't know. It depends a bit on what school of economics you believe in. For some, government spending will cure a recession, for others the availibilty of cheap money, i.e. low interest rates and tax cuts, are the key issue.

Many effects get soaked up by the nowadays globalized economy, though.

A weak dollar benefits US producers in theory, but if you have to heavily rely on crude oil for the production (e.g. steel, cars, anything plastic from computers to picnic cutlery), your competitors in the Euro zone or elsewhere will benefit from a weak dollar.

Goods and services are not all price-sensitive in demand. Mid-size cars and computers are somewhat more price-sensitive than luxury cars or medical supplies. So the effects of weak or strong dollar can vary by this variable as well.

Travel seems to be one of these goods and services, too: The reasonable consumer (i.e. that only theoretically existing homo oeconomicus who will allocate his given funds according to maximise his "profit", or tries to achieve a given profit with the lowest amount of funds) would not go to Euro zone today, but to - for example - Argentina. Thus, he would spend less (than usual) on travel, and have money left to spend in his domestic economy. But somehow still many travellers seem to have a problem with substituting Paris or Rome with Buenos Aires.

The more non-monetary variables like reputation, know-how, design, quality (real or assumed), customer loyalty, or similar, play a role, the lesser are the effects of interest rates.

Try this: China among many countries holds many dollars in various forms. Much of that horde was acquired when the dollar value was higher. Who has lost or gained? USA or China? Actually this may be good for travellers...fewer will be travelling. Airlines and hotels set prices based on demand. If EU hotels raise prices to accommodate the dollar value, air travel will decline. Airlines will respond by lowering prices. Wait and see.

China has gained from supporting the dollar in the past. The main reason why China hords more than one trillion (or billion, if you are in the UK) dollars was to soften the decline of the dollar, and thus keep the price for its mostly price-sensitive export goods at low levels. So what they lost on one side only as book value, they gained on the other side in hard cash. Not necessarily a bad idea.

Air travel prices usually react more flexible (i.e. get cheaper) when the supply side increases (more competition), than to a decrease in demand. Those carriers which already operate at the level of av. fixed costs will be the first to get kicked out of the market, consolidation will set in, fewer airlines or fewer connections mean less competition.

I would never say that each effect gets nullified by a counter-effect, but market mechanisms work with a multitude of variables which often have intervening side effects.

The problem this time around, for travelers, it that airlines will not be able to lower prices due to lower demand because of fuel costs.

The Euro is buying USD 1.5 today.

A few years ago a Euro only bought USD 0.85.

Turning this round the USD only buys just over half of the Euros it used to.

The USD has also weakened against virtually all the other currencies, too.

So, a holiday at home, this year ?

Peter

Nope! My holiday is in the States this year, much cheaper than staying at home ;)

I'm waiting that the Euro is buying 2 USD to book my holidays again in NYC.

lobo_mau. If the Euro hits that kind of rate and you return to NY, you are buying me dinner.

I love Europe but the weakening dollar, in conjunction with the increase in airfare, is making it more difficult for us to justify a trip or two to Europe each year. Honestly for us it's more of an airfare cost issue than it is the exchange rate issue, as I do still believe that there are ways to budget yourself in Europe.

We are going back to Europe (Germany) again in April, using FF miles, but are headed to Costa Rica in late August because we were looking for a Europe alternative.

Tracy

Hi Tracy. I agree with you about the airfare because we do use budget measures when we travel to Europe.

We are able to go twice this year as we are using miles for one trip. We have an opportunity to stay with relatives for the second trip and are lucky as this will save us for lodging.

The only thing I am grateful for is that we live on the East Coast. What about those of us that live in CA? Although living in Pittsburgh is no prize for selection.

This Europe afficionado currently has books from the library on China, Peru and India. I'm thinking of broadening our horizons on a different continent. Maybe we'll just stay home in the US this summer too, but those renewed passports that just arrived in yesterday's mail are also calling for at least a few stamps in them. Much as we love Europe, it is just too pricey now.

Sorry to gleam/gloat over what feels miserable to everyone else (and to me, too... thinking of the restaurant costs for our June 08 trip to Sicily)...

... but these "purchases" are looking better and better every day!

http://www.fodors.com/forums/pgMessa...p;tid=35105386

"Eight success stories, FF award travel to Italy from five different cities, beginning about six months out (long!)"

Best wishes,

Rex