Here’s why Americans traveling to Europe may score bargains in 2025

Americans traveling to Europe next year could be in for a few bargains.

This is due to the exchange rates between the euro and the US dollar. The euro has weakened against the U.S. dollar in recent weeks and is expected to fall further in 2025 and perhaps 2026, economists say.

“This is a good thing for American tourists traveling to other European countries,” said Brendan McKenna, international economist at Wells Fargo Economics. Their purchasing power could increase “pretty significantly,” he said.

The euro has largely been stronger than the dollar for decades, making it more expensive for travelers to buy euro-denominated goods and services.

More from CNBC

However, economists said expected policy actions under President-elect Donald Trump’s new administration, such as: B. Tariffs and other economic dynamics would strengthen the US dollar and devalue the euro.

The euro is expected to reach parity with the dollar

Economists expect the euro to fall to or even below parity with the US dollar next year. This would mean that the currencies would have an exchange rate of 1:1.

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, Netherlands, Portugal, Slovakia, Slovenia and Spain.

The currency most recently reached parity with the dollar for the first time in two decades in 2022 before recovering.

Now euro parity is “back in sight,” wrote James Reilly, senior market economist at Capital Economics, in a Nov. 11 research note.

“The euro has suffered more than most from Trump’s victory, and we doubt it will ease any time soon,” he wrote.

As of 10 a.m. ET Friday morning, 1 euro was equal to about 1.06 US dollars. That’s down about 3% from about $1.09 at market close on Election Day.

The ICE US Dollar Index (DXY) has also been on a winning streak recently, Reilly told CNBC. Last week marked the eighth straight week of an increase in the index, an “extreme increase” that has only occurred three times since 2000, Reilly said.

Travelers can try to capitalize on this currency dynamic by postponing a purchase until next year. For example, if you book a European hotel or trip that you can book now for 2025 but pay later, you can defer the cost – with the understanding, of course, that this is no guarantee that the euro will continue to weaken against the dollar becomes.

Tariffs, interest rates and a strong economy

Tariffs and trade policies are important factors affecting the dynamics of the Euro-USD currency, economists said.

Trump has introduced extensive tariffs against global trading partners.

During the election campaign, he proposed tariffs of 10% or 20% on all imports, including those from the European Union. He pledged Monday to impose an additional 10% tariff against China and 25% on all products from Canada and Mexico on his first day in office, signaling his willingness to impose import tariffs.

However, the ultimate scope and magnitude of the tariff policy is unclear.

Tariffs on Europe could reduce demand for its exports, leading to a weakening of Europe’s economy and a fall in the value of the euro, economists say.

Interest rate differences also have a big impact on relative currency movements, economists said. They expect the interest rate differential between the US and the Eurozone to widen in part due to the impact of tariffs.

The tariffs are expected to be “inflationary for the U.S.,” Reilly said. These import taxes are paid by U.S. companies, which generally pass on their higher costs to consumers.

Federal Reserve officials could keep interest rates higher for longer to bring inflation back to its long-term target. Meanwhile, economists expect the European Central Bank to cut interest rates further.

Tariffs in the euro zone would likely prompt the ECB to cut interest rates further to support the European economy, leading to a widening of the interest rate differential that “pretty dramatically” favors the dollar, Wells Fargo’s McKenna said.

There are other factors too.

For one thing, the U.S. economy has held up “much better than anyone expected” over the past year or two, in stark contrast to Europe, Reilly said.

Plus, financial markets don’t like uncertainty, McKenna said.

If question marks surrounding Trump administration policies unsettle markets in the near term, investors would likely look for U.S. dollar-denominated safe havens such as U.S. Treasuries, strengthening the dollar, McKenna said.

Of course, there is a risk that Europe will retaliate with its own tariffs or punish Americans in some way by raising certain consumer prices such as airfares, Reilly said.

“We don’t think that’s going to happen,” he said. “We believe that Europe wants as much free trade as possible.”