My wife and I recently spent 10 days in Rome and Venice on our honeymoon and I came to a realization about a mistake I had made when planning our trip. I had forgotten to keep a watch on the foreign exchange rates between the US dollar and the Euro.
By the time I realized my mistake it was already too late. My wife and I were positively going to go over our spending budget of $1000 dollars for the trip.
The few days before the trip, I started watching the Dollar/Euro conversions trying to figure out how much our spending budget would actually be. I figured that our overall budget would be about €670. At the time of this article, it cost $1.48 to buy 1 Euro.
Well, now we have less money than we thought and on top of it all, Italy isn't the cheapest place to take a vacation. For example, a hamburger at Hard Rock in Rome is €15,00, which is about $22.50. Ouch!
This is just one example of how a weak dollar impacts discretionary spending when traveling outside of the country. While going from sight to sight in Rome, I realized how little I actually understood about how a weak dollar affects us on a daily basis.
» Discretionary spending when exchanging currencies
A weak dollar reduces spending power in currencies outside of the US. This means that it is more expensive to buy outside products.
» Importing goods from overseas
Importing goods from overseas that have little domestic competition here will cost more. This is typically items such as electronics, clothing and oil.
The weak dollar also curtails foreign investments coming into the US. This causes yields on government bonds to go up to attract investors. This makes money more expensive for companies to borrower which impacts lending for items such as small business loans and mortgages.
» How it helps
A weak dollar is not all doom and gloom. Onshore manufacturers such as automotive and health and beauty products become more competitive in overseas markets. For example, stores overseas can now buy US made goods for less money and sell products at a more competitive rate.
A weak dollar also tends to benefit commodity producers such as steel rather than producers of finished goods such as automobiles.
A weak dollar also tends to benefit the tourism industry. Foreign vacationers are more likely to vacation in the U.S. since their currency can buy more here. Also, U.S. vacationers who are more likely to stay in the U.S. since a weak dollar may cause overseas travel to become too costly.
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