Americans take a strong dollar for granted. But now the buck's buying power is under siege. And that weak dollar won't go as far as it did earlier in the year.
Vacationers traveling abroad this summer, for example, will feel the financial pinch. It will be more expensive to travel to European cities like Rome, Paris or Barcelona. There are strategies to ease some of the pain.
"The dollar is weak, so it's going to cost more," said Jay Hatfield, founder, CEO, and portfolio manager at Infrastructure Capital Advisors.
European Vacations Hurt By Weak Dollar
Summer vacationers will no doubt feel the pinch when they sip a beer in Munich, buy a ticket to see the Sistine Chapel in Rome or ride the elevator to the top of the Eiffel Tower in Paris.
U.S. tourists going across the pond will also have to shell out more to buy furniture imported from Italy or a luxury watch made in Switzerland or a theater ticket in London's West End.
The U.S. dollar, historically the envy of the world due to its stability backed by America's strong economy, liquid markets and rule of law has been falling in value versus other foreign currencies this spring.
What's ailing the buck? The dollar has come under pressure as the world reassesses the trustworthiness and reliability of the U.S. in reaction to the Trump administration's trade war and tariff policy.
Since the end of 2024, the U.S. dollar index, which measures the value of the dollar versus six major foreign currencies, has slid more than 8% to its lowest level since 2023. The index is down almost 10% from its Jan. 13 high.
Weak Dollar Hurts Americans
Just like a stock or a mutual fund, the value of the U.S. currency rises and falls as economic conditions and change and market sentiment sours. A weaker dollar means Americans lose purchasing power.
The dollar's decline versus the euro to highlights the impact on U.S. tourists traveling to Europe this summer.
At the end of 2024, the euro/dollar exchange rate was 1.0355, which means every 100 euros spent by an American tourist in Italy would translate to $103.55. But due to the weakening of the dollar, the exchange rate (which hit a 52-week high of 1.1574 on April 21) is now 1.1360. So, now spending 100 euros will cost you $113.60. So, travelers will now pay 14% more when they go out to eat, or have a glass of wine or take in tourist attractions that require advance ticket purchases.
Booking an online ticket to the Vatican to see the Sistine Chapel costs 25 euros. At the start of the year, that translated into $25.88, but now will run you $28.40, or $2.52 more. Similarly, an elevator ride to the summit of the Eiffel Tower, which costs 36.10 euros, will now cost $41.00, or $3.62 more than on Jan. 1. A trip to see the Mona Lisa at the Louvre Museum in Paris, which costs 22 euros, will run you $2.21 more.
The Costs Add Up
The higher costs of sightseeing due to the weaker dollar might not seem like much. But if you add up the costs of food, drinks, transportation and a treat like a boat ride, over a weeklong or two-week vacation it becomes more meaningful.
For example, let's say you dine out in Venice, Italy, and spend 150 euros on a tapas appetizer, mixed fried seafood, pasta, carpaccio, wine and tiramisu for dessert. It will cost you $170.40 now, versus just $155.33 on Jan. 1, 2025.
"So, as a consumer, if our dollar doesn't go as far (and keeps weakening), we need more dollars to buy the same thing we bought last week," said Lisa Featherngill, senior VP, and national director of wealth planning at Comerica Wealth Management.
One tip to save money is to monitor the exchange rate in the weeks and months ahead of your trip, says Featherngill. If you know the euro is now 1.14, for example, and you see it drop to 1.08, maybe take advantage of the short-term strengthening of the dollar and purchase a trip to a museum online in advance or transportation you might need while abroad, says Featherngill.
You'll get the best exchange rate if you use your credit card for purchases. And you can save on fees if you charge dinner if you have a credit card that does not charge foreign transaction fees. So, check with your credit card company before you depart. If you use two or three cards ordinarily, maybe one of them has zero international fees. If so, use that card.
Protecting Money Amid A Weak Dollar
You can also save by avoiding paying a steep service charge when you get euros at an ATM while you're out of the country. Those ATMs you see at random places often charge higher transaction fees than the ATM at a real bank.
Featherngill says there are three impacts a weak dollar has on Americans. One, it makes things more expensive. If you're buying an imported purse or pair of leather shoes, for example, it will be more expensive to purchase them with a devalued dollar. Two, it makes traveling and buying things abroad more costly in countries where the local currency is gaining in value versus the dollar. And third, it can potentially have a negative impact on your investments, Featherngill says.
When it comes to your investments, such as your 401(k), IRA or brokerage account which hold dollar-based assets like U.S. stocks and bonds, a weak dollar could signal that U.S. assets are not viewed as positively as they were in better times, according to Kristian Kerr, head of macro strategy for LPL Financial.
And that less bullish sentiment can weigh on your U.S.-based investments.
Why A Weak Dollar Hurts Your Portfolio
Investors tend to invest in places where their capital is treated best, says Kerr. So, if U.S. assets start to underperform, it's likely investors will move some assets to parts of the world where they can generate better returns.
In the first quarter, for example, when foreign stocks outperformed U.S. stocks, money moved out of U.S. stocks and into foreign markets, such as Europe.
"You're seeing this rebalancing effect where a lot of foreign investors are saying, 'Well, OK, I've had an overweight to the U.S. (for some time), why not pull that money back (and invest somewhere else?'" said Kerr. "(Foreigners) pulling their money out has that kind of effect weighing on U.S. equities."
An offset to a potential decline in U.S. assets is to shift more money into international equity markets, where returns going forward could be better, says Kerr. Foreign assets, adds Kerr, are selling at more attractive valuations, too.
A report by JPMorgan noted that the impact of so-called "de-dollarization," or a significant reduction in the use of the dollar worldwide, could be bearish for U.S. assets. "De-dollarization would likely lead to a broad depreciation and underperformance of U.S. assets versus the rest of the world," the bank noted in a report.
