Welcome to retirement, there’s never been a better time to let your itchy feet trot around the globe. And, you’ll be in good company. Many retirees significantly increase their travel budget once they say arrivederci to the 9 to 5 lifestyle. Not surprisingly, many clients undergoing this ‘reallocation’ to travel often wonder the following: “We’re planning to travel to Europe next summer. Considering that Europe is having financial troubles, wouldn’t it be wise to hold off exchanging currency until the euro declines against the dollar?”

Unfortunately for everyone, the answer isn’t so simple… Currency markets are actually quite volatile and therefore it’s nearly impossible to predict fluctuations over a short period of time. Two current drivers of USD/euro movements are interest rate differentials and trouble in the southern European states. As the European Central Bank raises rates, the dollar faces downward pressure. However, the European Union has not solved the debt issue and if one of the PIGS (Portugal-Iceland-Greece-Spain) needs to restructure its debt, we could see a significant loss of value in the euro. The interest rate differential is occurring now but restructuring is growing more likely and could occur at any time.

That all said, any near-term forecasts you read should be viewed as very rough predictions bordering on wild guesses. I suggest that instead of holding off on exchanging currency in an attempt to time currency fluctuations, you convert dollars to Euros in 2-4 steps determined by calendar date. Similar to dollar cost averaging, this will provide multiple opportunities to get the timing of the transaction correct or incorrect, which should mitigate any regret associated with the timing relative to a single transaction. In other words, several baby steps are more prudent than one potentially big stumble when getting your money belt ready for departure.