U.S. consumers may soon begin to feel some pain from the dollar’s downturn. The greenback has dropped 8 percent in 2017 and is on track for its first annual decline in five years.
It weakened after U.S. tax changes aimed at spurring growth were slow to materialize and lackluster inflation weighed on the longer-term trajectory for interest rates even as the Federal Reserve tightened policy. A more upbeat picture in other parts of the world such as Europe has also weighed on the U.S. currency, and many analysts predict further weakness ahead.
If you’re an American who is actually going abroad to Europe or elsewhere, there’s no denying that your spending power will be reduced in many other locales.
“A weaker dollar will encourage home tourism and discourage consumers from vacationing abroad,” said Sireen Harajli, a foreign-exchange strategist at Mizuho Bank Ltd. in New York.
For a time, the dollar’s strength against the euro made Western Europe an attractive destination, according to Erik Nelson, a currency strategist at Wells Fargo. But for those wanting to travel abroad now, the weakening greenback is clearly a negative, he says.
The dollar is predicted to decline against 12 of its 16 major peers next year, so vacationers may end up being more selective when it comes to international destinations or consider local options instead.
Conversely, the weaker dollar may attract foreign tourists to the U.S.
“We will likely see a surge in tourism in the U.S. similar to what we saw during the financial crisis when the dollar weakened as the Fed began to aggressively ease monetary policy,” Mizuho’s Harajli said. “Fifth Avenue all of a sudden became full of European and Asian tourists looking to shop as their purchasing power increased,” she said.
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