Does it now make sense to Cash in to Euros early?

It's worth keeping in mind there are investors that make a living speculating on foreign currency, banks that have big trading desks dealing in foreign currency, etc. These people buy in such huge quantities that if they can make 1/4 of 1% on a deal it adds up to a lot of money. If enough really believed the dollar is going to drop, they'd be selling dollars and buying Euros today, which would push the value of the dollar down. They'd keep doing it until the dollar fell to what they think it is going to be in the future.

What this means is that the price of the dollar today is just right for today, and that the next news to move its value is random. Could be news that pushes it up, could be news that pushes it down. Francis is suggesting you to buy euros today because the dollar is certain to go down, but you and Francis will be out there on your own while the people that make a living speculating in currency aren't making that bet. Or else they'd be jumping in with both feet as long as they felt there was a profit left in the spread between todays price and the one in the future. Something else to think about...

Looks like a pretty straight forward trend line to me.....

No, for me it doesn't make any sense. I am not smart enough. What Francis is suggesting is currency speculation. Francis, if you really believe everything you have posted, then you should be using every penny you can get, borrow, beg, or steal to buy Euro. And then sit back wait to become wealthy. The middle part of your posting doesn't make much sense. You have your numbers backwards. One dollar buys .62 Euro. Technically speaking the worth of the dollar is not determine by the Euro or any other currency -- it is just the relationship between the two currencies. The dollar is worth a dollar and a Euro is worth a Euro. It happens to take about $1.50 US to buy one Euro. I am just back from 30 days in Europe and my range of exchange rates was 1.45 to 1.48 US/Euro. I paid no additional fees for either the credit card or debit card. And we paid cash for nearly everything. Even if I want to carry that much cash from the beginning I don't know of anywhere in the US that I could obtain 5 or 6,000 Euro at or near the interbank rate. When I buy Euro in the US I pay about a 5 to 10% premium. That is big bump to make up if you buy cash here now. And five months is not a trend.

You have to remember that there is a whole bunch of people who think that a weak dollar is good for the economy. Makes exports cheaper and imports more expensive. It is just bad for the US traveler. And who are the sharks preying on this concept? There is nothing to prey on.

I posted this very same question a couple of months ago, so you can follow the responses here: http://www.ricksteves.com/graffiti/helpline/index.cfm/rurl/topic/37784/is-it-ever-worth-buying-euros-ahead-of-time.html.

It sounds good in theory, but as others have pointed out, it does not necessarily work out that well in practice and it is a lot like gambling or buying stocks. It may make sense for long-term money-making, but not as a savings measure for your annual vacation.

As Frank says, 6 months is not a trend. Currency analyists are predicting the dollar to strengthen slightly to around € 0.70/ $1US by next April, but no one knows for sure of course. Guess I'll find out on my next trip.

Two other factors you also need to keep in mind:

1. You don't pay the price you see in your graphs, you pay some fee or difference above the Interbank rate. If you use an ATM in Europe, the cheapest option, you pay about 1% above interbank. If you convert at a bank over here (US) you are lucky to get 3% above interbank, 5% would not be unusual, meaning that any gain in currency fluxuation must first offset the fee difference.

2. In economics, you learn about the "Time Value" of money. Buying Euros locks up that money from being used for other things, like earning interest, until the time you use it. This means that any gain seen in currency values must, in addition to transaction cost, offset any lost gain in interest,

In the end, a bet like this becomes more and more of a long bet.

For a while I had a part-time job here that paid me in dollars. Two years ago, for my $1000 I received 800 euro, last year in Nov. I got 610 euro, earlier this year, it was up to 720 euro. So all this activity took place in just 2 years time. It goes up and down constantly, and no one can really predict where it is going.

I think the US is quite happy with the dollar where it is as then they sell more products. The trade deficit that we had before has improved with a low dollar along with the tourist industry of people coming to the US.

“I want to say one word to you…just one word….plastics!”

Seriously, nobody in the financial centers of Frankfurt, London, New York, Zurich, or Tokyo cares about our purchasing power when we’re traveling. Equity investors, commodities traders, currency speculators, oil producers, and others love a weak dollar. U.S. travelers don’t like a weak dollar. I also agree with RB.

My 20/20 hindsight goggles were getting the way. I see what you are all saying. We just planned this thing so far ahead, and the exchange rate sort of tanked right between the first plan and doing it. When the Euro was 1.30, I didn't think much about the conversion. At 1.50, I could feel it, and had to think about the exchange rates more than normally and re-think if something was a good deal or not.

None of this would interest me. If I want to go to Italy I am going regardless of the dollar/euro exchange rate. I travel there every year because I want to and saving the last dime is not my primary concern to enjoy myself. Plus, I am not that smart to stay on top of the world's monetary situation.

Honestly, would saving the extra $300 make your vacation any more or less enjoyable?

Buon viaggio,

RB

RB raises an excellent point. Sometimes folks will focus on very small point when trying to save money. A good example is the brain damage done trying to save a hundred or two on airfares when it is far easier to save that hundred bucks somewhere else in the travel package. The second biggest discussion is around early currency conversion. If I could buy Euro at or near the interbank rate in the US I might be tempted to try. The downside risk over a short period of time would be manageable but the upside gain could be very small and, as someone else pointed out, the opportunity cost for that money has to be factored in so most it would be lose, lose game.

Someone constantly posts that she buys pounds when money is available as a forced, set aside travel budget because of the lack of financial self-discipline. But over time I would assume that practice would cost her upwards to 10% or more. But that is fine for her because it works for her in her situation but hardly a reasonable recommendation for the average traveler.

There are many more places in a travel budget to save money than currency speculation or going nuts watching air fares go up and down. For example -- paying cash for your lodging will almost always net you a 5% saving.

...and, if I bought Microsoft stock in 1986 or if I didn't hit on that 16 while playing blackjack in Vegas