Here's why Americans traveling to Europe may find bargains in 2025
S E E D E D C O N T E N T
Americans traveling to Europe next year may be in store for some bargains.
That's due to euro-U.S. dollar exchange rates. The euro has weakened against the U.S. dollar in recent weeks and is poised to fall further in 2025 and perhaps into 2026, economists said.
"That's a good thing for American tourists traveling abroad in Europe," said Brendan McKenna, an international economist at Wells Fargo Economics. Their purchasing power could rise "pretty significantly," he said.
The euro has largely been stronger than the dollar for decades, making it pricier for travelers to buy goods and services denominated in euros.
But anticipated policies under President-elect Donald Trump's incoming administration, such as tariffs, and other economic dynamics are expected to bolster the U.S. dollar and depreciate the euro, economists said.
Euro is expected to hit parity with the dollar
Economists expect the euro to fall to or even below parity with the U.S. dollar next year. That would mean the currencies had a 1:1 exchange rate.
The euro is used by 20 of the 27 nations in the European Union: Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.
The currency most recently hit parity with the dollar in 2022, for the first time in two decades, before rebounding.
Now, euro parity is "back on the cards," James Reilly, senior markets economist at Capital Economics, wrote in a research note Nov. 11.
"The euro has suffered more than most in the wake of Trump's victory and we doubt that will let up anytime soon," he wrote.
As of 10 a.m. ET on Friday morning, 1 euro equaled about $1.06. That's down about 3% from roughly $1.09 as of market close on Election Day.
The ICE U.S. Dollar Index (DXY) was also recently on a winning streak, Reilly told CNBC. Last week marked the eighth straight week of gains in the index, an "extreme run" that had only happened three times since 2000, Reilly said.
Travelers can try to take advantage of these currency dynamics by delaying a purchase until next year. For example, a European hotel or tour that allows you to book now for 2025 but pay later lets you defer the expense — understanding, of course, that it's not a guarantee the euro will continue to weaken against the dollar.
Tariffs, interest rates and a strong economy
Tariffs and trade policy are major factors influencing euro-USD currency dynamics, economists said.
Trump has floated broad tariffs on global trading partners.
On the campaign trail, he proposed tariffs of 10% or 20% on all imports, which would include those from the European Union. He vowed Monday to impose an additional 10% tariff on China, and 25% tariffs on all products from Canada and Mexico, on his first day in office, signaling his willingness to implement import taxes.
The ultimate scope and magnitude of tariff policy are unclear, however.
Tariffs on Europe could reduce demand for its exports, causing Europe's economy to weaken and the euro to lose value, economists said.
Interest-rate differentials also have a large influence on relative currency movements, economists said. They expect the interest-rate spread between the U.S. and eurozone to widen due partly to tariff impact.
Tariffs are expected to "be inflationary for the U.S.," Reilly said. Those import taxes are paid by U.S. businesses, which generally pass their higher costs onto consumers.
U.S. Federal Reserve officials may keep interest rates higher for longer to bring inflation back to their long-term target. Meanwhile, economists expect the European Central Bank to keep cutting rates.
Tariffs on the eurozone would probably lead the ECB to cut rates further, in a bid to prop up the European economy, creating a widening rate differential that "pretty dramatically" favors the dollar, said McKenna of Wells Fargo.
There are other factors, too.
For one, the U.S. economy has "held up a lot better than anyone has been expecting" over the past year or two, in stark contrast with Europe, Reilly said.
Also, financial markets dislike uncertainty, McKenna said.
If question marks around Trump administration policy unsettles markets in the short term, investors would likely seek out safe-haven assets denominated in U.S. dollars, such as U.S. Treasury bonds, thereby strengthening the dollar, McKenna said.
Of course, there's a risk Europe retaliates with its own tariffs or somehow penalizes Americans by raising certain consumer prices, such as airfares, Reilly said.
"We don't think that will happen," he said. "We think Europe wants as free trade as it can."
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