Tourists to US take a pounding from the dollar

In the weeks before heading to San Francisco for their vacation this month, Jeff Skipper and his wife, Valerie, from the UK, watched helplessly as the US dollar continued its meteoric rise against the British pound.

The sterling-dollar exchange rate — which slumped to a record low this week — has reduced the affordability of the already pricey Golden Gate City for the couple, forcing them to economise on holiday luxuries.

“The exchange rate has been the biggest topic of conversation since we got here,” said Jeff Skipper, an electrician.

“Everything is pretty expensive for us,” said Valerie, a 47year old university administrator. “We’ve been buying food from grocery stores rather than having sit-down meals, because when you change it to the British amount, it doesn’t seem worth it. It’s really a lot of money.”

The pair are among droves of visitors to the US feeling the pinch of the mighty greenback, which scaled two-decade highs this month driven partly by Federal Reserve interest rate hikes.

FREE FALL

For British tourists in the US, the pain of the rampant dollar has been amplified by the collapse of the pound, which entered a near free fall on Monday after the British government announced unfunded tax cuts that sent investors fleeing.

Sterling hit a record low of $1.0327 on Monday, having plummeted 20% against the dollar this year. It was trading just above that on Wednesday at $1.0888.

“Now it’s one dollar to the pound ... It’s really hit us,” said Colin Taylor, a retired telecom engineer from the UK who was also visiting San Francisco with his wife.

“We have breakfast and it cost us £50, you know? And if this were at home, it would be £20 or £25. So, it’s a big, big jump for us.”

While the pound has experienced some of the most violent gyrations in recent days, currency markets across the board have seen huge swings amid increased geopolitical tensions and central bank rate hikes to tame soaring inflation.

The relative strength of the US economy has allowed the Fed to raise rates more aggressively than its peers, however, pushing the dollar up against the British pound, the euro and Japanese yen, as well as a slew of smaller currencies.

The dollar index, which measures the greenback against a currency basket, hit a fresh 20-year high of 114.78 on Wednesday.

“The dollar is too high. So we are spending, but not the way we would like,” said Jose Alvado, a public accountant from Argentina who was visiting New York with his wife and two daughters.

“We are going to cheaper restaurants ... We go to the Disney store and we don’t pick everything. We just take a look and then we go.”

PARITY

Still, with Covid-19 travel restrictions lifted, international inbound US leisure travel spending — adjusted for inflation

— is forecast to reach $87bn this year compared to $33bn in 2020 and 2021, and $145bn in 2019, the US Travel Association said in June.

But some tourists say they will not let the dollar’s strength spoil their fun.

“I have to enjoy New York,” said Gilles Nolorgues, an app designer from Paris.

For travellers outside the US with dollars in their pocket, the spending is easy.

With the dollar and the euro reaching parity for the first time in 20 years in July, American tourists have been splurging on luxury goods in Paris as well as enjoying cheaper treats in London’s West End, Reuters has reported.

Americans are spending 11% more on domestic and overseas travel in 2022 compared with 2019, according to consumer survey data gathered by the American Society of Travel Advisors, a trade organisation.

‘MONOPOLY MONEY’

“It feels like we’re spending Monopoly money,” said Ike Armstrong, 26, from California, speaking near London’s Trafalgar Square.

In Bali, Indonesia, 39-year old Johnny Follin from Los Angeles, California, said the strong dollar had allowed him to indulge more on good food, drinks and massages than he would have otherwise.

The US dollar has risen about 7% on the Indonesian rupiah this year.

“For bringing US dollars here, it’s the best time in ages,” said Paul Spight from behind the counter of his currency exchange in Wollongong, south of Sydney, Australia.

The US dollar is up about 10% on the Aussie this year.

“That really helps the spending power coming in,” Spight said. /Reuters