The Federal Reserve lowered its key interest rate by a hefty half percentage point Wednesday, moving ahead with its first rate cut in four years. As a result, the value of the dollar abroad fell slightly. Nevertheless, there’s no need to rush to the nearest foreign currency exchange bureau if you have a trip abroad planned in the near future.
Because the rate cut has been forecast for so long, it’s largely already been priced into the value of the dollar in international markets.
“Exchange rates tend to adjust when a decline is expected,” Laura Veldkamp, a professor of economics and finance at Columbia Business School, told USA TODAY on Tuesday before the decision was announced. “The level of the exchange rate is set for people to not lose.”
Veldkamp said the bigger shift would have occurred if the Fed bucked expectations and left or raised rates on Wednesday. Such a surprise shift from the expectations would likely have caused a bigger jump in the value of the dollar against foreign currency.
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For those planning a trip, it’s also not worth agonizing too much about getting currency before the Fed’s decision.
“If you need foreign currency, just buy it when you need it,” Veldkamp said, especially because any exchange rate adjustment in the wake of the Fed’s decision is likely to be minimal. “In general, currency speculation is a very bad idea … Even the professionals don’t do it very well.”
Zach Wichter is a travel reporter based in New York. You can reach him at zwichter@usatoday.com.
This article originally appeared on USA TODAY: How the Fed rate cut could affect your next trip abroad
