Americans have been embracing “revenge travel” since pandemic-era restrictions were lifted, and the dollar’s recent surge has made such trips even more attractive.
In fact, so many Americans are traveling to Europe that many cities are looking for ways to curb overtourism. That’s because the Fed’s aggressive rate hikes and longer-term stance have boosted the U.S. dollar against major global currencies, which it has already fallen against as other central banks are expected to start cutting interest rates soon.
The U.S. dollar index, which measures the greenback against a basket of currencies, is up about 4% so far this year and is up 5.6% from its July 2023 lows. For Americans.
But U.S. overseas tourism, which is treated as imported services when calculating GDP, was disappointing in the first quarter, in part because of a widening trade deficit. A Wells Fargo report on Friday showed that the share of services imports allocated to travel has reached its highest level in recent months since 2005, when the dollar also experienced a period of strength.
“On the services side of trade, the U.S. runs a trade surplus, so if foreign travel continues to increase while the goods deficit widens, net exports could have a significant impact on real GDP growth,” the analysts wrote.
Wells Fargo also calculated that during a similar period of strong dollar strength from 2014 to 2015, tourism imports (Americans vacationing abroad) increased by about $1.1 billion, while tourism exports (foreigners vacationing in the United States) were almost unchanged.
To be sure, tourism services worth $1.1 billion accounted for 1.5% of the total trade balance, the analysts added. But don’t let this small portion fool you.
Wells Fargo concluded: “In short, the increase in foreign travel may not be enough to drive growth significantly in any one month, but over time it may become a more important factor in net exports than currently thought.”
