What a Strong US Dollar Means for Travel

Those delayed pandemic-era trips are back in full force this year with Americans applying for passports at unprecedented levels. The US State Department has issued more than 24 million passport books and cards between October 2022 and September 2023 – the most ever in US history.

Some 26% of air travelers will be flying abroad over the holiday season, where one in five said they are making up for lost trips, according to Deloitte’s 2023 holiday travel survey.

But that’s not all, Americans plan on spending more on holiday travel where 15% of the survey respondents are setting aside more budget for travel this year compared to 2022, some of which will be used for a special bucket-list trip.

With increased appetite to spend abroad, just how far can the US dollar go in other countries?

Here’s what our colleagues at Goldman Sachs Research think about the dollar. Spoiler alert – you can go ahead and pack your bags; it’s likely going to be a good year.

The case for another strong US dollar year

Economic growth is key to whether the US dollar would stay strong throughout 2024, and our Research colleagues are more optimistic than the consensus. Here are the factors they considered.

The US Federal Reserve has held back from raising rates since the last hike in July, satisfied that inflation is trending down, and the red-hot economy is cooling. Goldman Sachs Research expects potential rate cuts as early as March this year due to lowering inflation.

Global GDP is forecasted to be at a resilient 2.9% in 2024, according to the International Monetary Fund (IMF), while the St Louis Fed’s Survey of Professional Forecasters is predicting US GDP at 1.3% next year.

Usually, strong global economic growth would lower the US dollar as other currencies would be in demand, but our colleagues in Research are expecting US growth to be the “surest” thing compared to other major economies. Disinflation and rate cuts are likely to take place everywhere, however, lackluster activity in the eurozone, continued structural challenges in China, and Japan exiting its negative interest rate policy are all likely to mean that key “challenger” currencies — EUR, CNY and JPY — are unlikely to attract substantial capital flows away from the US.

Our colleagues pointed out that the consensus at the start of 2023 was for US growth to be about 0.4%, but it's on track to grow by about 2.4% for the year. Meanwhile, growth in Europe and China has struggled, so the majority of cross-border fund flows have been directed into the US – about $70 billion so far.

When US growth is strong, investors expect outsized returns, so they demand additional US dollars in order to buy more US assets. That’s exactly what they did in 2023. Research expects slight erosion in the US dollar over 2024, but likely US outperformance should keep the dollar in high demand throughout this year.

Tips to save on travel while the US dollar is strong

That European getaway doesn’t have to break the bank. A strong US dollar means your buck is likely to go further when you pay for goods and services in other countries. Here are some tips that could help you save.

1. Prepay hotels, tours, tickets. Depending on when and where you want to travel, prepaying for hotels, tours or tickets while the exchange rate is favorable could help you save and remove uncertainty around fluctuations in the exchange rate.
2. Use credit cards without foreign transaction fees. Using a travel credit card could help you save on those extra bank fees when paying in another currency. Bonus if they come with rewards.
3. Opt to pay in local currency with the credit card. When paying with a credit card at your destination, the store’s point-of-sale may offer you the choice of paying in the local currency or US dollar. Consider choosing the local currency to avoid additional fees that the merchant’s bank may charge for the currency exchange (aka, dynamic currency conversion fee).
4. Check tipping etiquette. It may come as a surprise to Americans that many cultures do not expect tips (some even see tipping as an insult!). Generally, a few loose coins may be appreciated, but best consult your travel guide before adding gratuity.
5. Make sure your passport is not expired. If you haven’t already checked whether your passport has expired, don’t delay. The State Department said passport processing times could take between 7 to 10 weeks (or 3 to 5 weeks for expedited applications). Planning to get your passport renewed before your travel date will save you from the additional fees to get it expedited… and the stress!

Be sure to check the State Department’s travel advisory website for any alerts on your destination and enjoy your well-deserved trip.