Foreign exchange rates: should they influence our travel plans?

Uzbek SomNext month we will exchanging our hard-earned pounds for Japanese yen and I will be once again cursing my lack of hindsight. Almost exactly four years ago we would have got 250 yen to the pound; we will be lucky now to get much over 120. Japan, already known as an expensive country, has doubled in price to UK visitors purely as a result of the strength of the yen and the corresponding weakness of the British pound.

The days of the strong pound are not far behind us yet it already seems like something of a golden age. A pound could buy US$2, 1.6 Euros, or 2.5 Swiss Francs. A little further back in 2001 we changed our pounds for 2.8 Australian dollars, while at 3.5 NZ$ to the pound we didn’t need to watch our budget too closely in New Zealand.  But should exchange rates affect our travel plans? Should we choose where we go based solely on whether we feel we’re getting a good rate for our pound or dollar?

The first thing to bear in mind is that how a currency has performed in the past is no indicator of how it might behave in the future. If the pound rises to $1.80 in the next six months we can no more suggest it will come back to $1.60 than say it will keep moving to reach $2.00 again. It is where it is because the international money market believe this is a fair rate on this day. Future events, the interpretation of those events and general sentiment of foreign exchange traders will determine what happens next.

So how should this affect our travel plans? We might look at visiting Australia now and see that a pint of beer is now more than £5 a pint, double its price only a few years back, while a modest hotel room that was under £30 is now a whopping £60. Should we put Australia off for a couple of years to let the prices come back to a more sensible level? Or do we go now before beer reaches £10 and a motel on the outskirts of Melbourne costs the same as a London 5 star hotel?

Ultimately as we cannot predict exchange rates we can’t expect to know the future trend of prices that we as visitors will pay in any particular country. Visiting Japan is too much of a draw to us to wait around just in case the pound makes a comeback at some time in the future.

Many people choose their holiday destination based on their desire for something not country specific (usually sun, sea and sand). If these are the main factors that determine where you go then exchange rates will have a bearing; perhaps making Turkey attractive when the Euro is strong and Greece when it is weak. But for those dream trips to Australia, South Africa or Japan, it’s not worth changing your plans for the sake of the exchange rate; otherwise you might be forever waiting for something to happen in the money markets.


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11 Responses to “Foreign exchange rates: should they influence our travel plans?”

  1. Good points you raised there Andy. If there are destinations that are definitely entered in a let’s-go-before-we-die list, then I agree that if one watches the exchange rate and decides whether to go or not, we might end up not going at all.

    But, I guess one good thing that can come out of this exchange rate fluctuation is that it might be useful when one plans for a trip and one doesn’t have a set destination yet. I remember reading in the past about travel articles in newspapers saying “Now is the time to visit Iceland!” when the banks collapsed in 2008 (?), and I do recall similar tokens when Argentina collapsed too in 2002. If one wants a trip where one’s money can be potentially strong, and one doesn’t have a destination in mind yet, favorable exchange rates can perhaps be a way to narrow down the choices.

    After all, I personally am guilty of that. One of the reasons why I frequent Latin America for my past trips is that my US dollar still goes a long way there, in addition to it being relatively close to where I currently am. As a struggling graduate student, these factors are definitely taken into consideration.

    July 26, 2011 at 11:34 am
  2. I was going to mention Iceland but see that someone has preceded me already. The point I wanted to make was that sometimes there can be a “window of opportunity” when the exchange rate of a particular country is perceived as abnormally low, unsustainable and subject to a correction closer, if not all the way, to the value of the recent past. The tour agencies are quick to advise the travellers to jump on the departing train before the trends even out. This is what happened with Iceland when the krone became double the bargain for pound earners.

    And the reason I say “perceived” is because, a couple of years on, we are still waiting for Iceland to sort out its finances, and the “window of opportunity” is now looking a little stretched : ) So changing one’s plans in response to forex fluctuations may make sense but only in the short term.

    A very well written piece, Andy. But then again, I always say that.

    July 26, 2011 at 12:35 pm
  3. Andy Jarosz #

    Thanks for the comments and yes, Iceland is an excellent case in point. It did suddenly become very affordable when the value of the krone halved in value. But as you point out Anjci, perhaps Iceland will not rebound so quickly. If the markets were so confident that it would then the krone would already be worth more (I hope it’s still a bargain when I finally make it to Iceland).

    July 26, 2011 at 3:15 pm
  4. As an American, no because it doesn’t matter anyways. We are screwed in most western countries we visit! Now if you want to visit southeast Asia or Africa, money can definitely go further but that’s apples and oranges. It’s a completely different level of comfort and type of trip. The other option would be Latin America which is in between the two and a more feasible option exchange wise.
    From a US perspective, visiting western countries is going to cost people more no matter where they go. Given the current economic situation, the foreign exchange rate could play a factor but if you already know the area you want to visit, this has to be taken into account before you even go.

    I would say do what you want, budget a little more (in case exchange rates change), and go anyways.

    July 26, 2011 at 6:04 pm
  5. As always you write about topics that are thought provoking and the answers are nebulous. It really depends on the traveler. Someone who is just graduating college or maybe suffering a little from the recession may only have a choice to visit countries with better exchange rates.

    On the other hand, if you can afford a trip where the exchange rate is better you can probably afford a vacation where the exchange rate is worse. Most vacations only last a week to two weeks, so the difference in money spent between a cheap country and an expensive country is notable, but not an amount that will put someone out on the street.

    As Jeremy pointed out, travel in countries where your money goes a lot farther is a completely different experience from say Japan or for Americans going to Europe, or vice-versa.

    I think people should pick a destination first, then deal with the exchange rate. If you go chasing the best exchange rate you may not have the vacation you really want.

    Great topic!

    July 26, 2011 at 10:00 pm
  6. Hey Andy, this is a very relevant topic in my life given my experiences working overseas as an English teacher. I’ve been the recipient of very favorable and unfavorable exchanges. I find it somewhat frustrating when you are trying to make concrete plans that are dependent upon available funds. I agree with your point that one should continue on regardless of the current situation, but the other thing to keep in mind is that there are always ‘bargain’ destinations for those without set plans.

    July 26, 2011 at 10:38 pm
  7. Tim Richards #

    I think the answer to your headline question is “maybe”. Australians have always been obsessed with exchange rates, partly because we generally travel for longer periods and every dollar counts – but that hadn’t stopped us from traveling to Europe (the UK in particular) during periods that our dollar bought very little.

    However, where it plays a role, I think, is where there’s some discretionary element. For example, I find all of Europe interesting – so given that, why travel to the Scandinavian countries, which I’ve always been told are ruinously expensive? Though on that note – now that the Aussie dollar is so strong against the euro, I’m thinking the time to visit Sweden may finally be upon me.

    So, similar to your conclusion, I think it depends on how much the individual traveller wants to visit a particular place. If everything’s lined up right except the exchange rate, it’d be silly to put off a trip you’ve always wanted to do just because of that. There are always ways of spending less money, even in expensive locales.

    July 27, 2011 at 12:00 am
  8. Is the photo a pile of Uzbek Som?

    July 27, 2011 at 2:07 pm
    • Andy Jarosz #

      well spotted James – around $50 worth if I remember rightly

      July 27, 2011 at 2:41 pm
  9. An inch of Som was about $50 last time i measured so yeah i think it is about right.

    You are of course right about people wanting the most from their holiday dollar but i don’t know if anyone really is waiting for the Chinese ecomonic miracle to fail before they visit the Great Wall.

    July 28, 2011 at 1:31 pm


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