Opportune times: Take the European vacation of your dreams

By John Spence

A strengthening U.S. dollar means it might be an opportune time to book that European vacation you've long been fantasizing about.

You can thank Mario Draghi, the chief of the European Central Bank.

 

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The euro/dollar exchange rate has weakened even further after Draghi recently announced a surprise interest-rate cut to help boost Europe's soft economy.

Whether you're envisioning yourself sipping barolo wine in Piemonte, enjoying gelato in Rome, or savoring brie in a Paris cafe, a rising greenback means American travelers can get even more of it in Europe.

 

Turning the tables

Currency exchange rates are heavily influenced by interest rates, as Jeremy Quittner at Inc. explains:

"What happens when your central bank cuts interest rates and the value of your currency declines? If you were America in 2009, following the financial crisis, you would have seen a flood of tourists breaking down your doors for cheap vacations and to go on shopping sprees for iPhones, designer jeans, and the like," he writes.

Now, five years later, the tables have turned.

"In the wake of the European Central Bank’s decision to cut its main interest rate last week, which instantly caused the value of the euro to drop, Americans are expected to return the favor, pouring millions of dollars into the Old World as the value of goods and services decreases overseas," Quittner added.

Tensions between Ukraine and Russia and expectations the Federal Reserve may finally begin raising interest rates in the U.S. have also played a likely role in driving the euro lower against the greenback.
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The price of an ETF that tracks the euro's moves against the dollar

 

Euro trashed

The value of the euro currency versus the dollar is at the lowest level in a year.