Weakening dollar means U.S. tourists finding European vacations costlier

WASHINGTON (Map, News) - It’s going to get more and more expensive for U.S. tourists to travel in Great Britain and many European countries as the dollar slides toward record lows against the euro and the British pound.

Not that it isn’t expensive now. On Wednesday afternoon in Europe, the euro — the currency used in 13 European countries, including the popular tourist destinations of Italy and France — traded at $1.37 against the U.S dollar. That is, it takes $1.37 to buy one euro. In Great Britain, the pound hit a 26-year high against the dollar, trading at $2.03 against the pound. This is the highest level for the pound since 1981. The weakness of the dollar reflects worries overseas about the health of the U.S. economy.

“It does look to have been a relatively short run [of currency devaluation] stemming from the subprime mortgage market,” said Brian Dolan, chief currency strategist at GAIN Capital in New York. The number of foreclosures and delinquent payments on these types of home loans, given to people with poor or limited credit history, has risen sharply in recent months, creating wider instability in the housing market.

The dollar will likely remain soft until the damage from the subprime fallout is fully understood, Dolan said though the effects could be limited, For example, he said, a key Bear

Stearns hedge fund, which “has been the poster child for the whole episode, seems to be able to resolve its position in an orderly fashion.”

George Washington University tourism studies professor Douglas Frechtling said the soft dollar isn’t likely to stop people from traveling, as airline ticket prices are largely unaffected by currency fluctuations. However, once they’ve arrived, “leisure travelers are going to be much more exchange rate sensitive.”

The real victims of the currency drop, Frechtling said, are companies that provide tour packages, as these plans were priced when the dollar was much stronger.

“The tour packager is going to have to eat those higher costs,” Frechtling said.

dfrancis@dcexaminer.com

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