Strong American Dollar Impacting Other Destination Markets for International Education

The American dollar (USD) has surged in strength in 2022, reaching generational highs. And, shockingly, the euro reached a 20-year low as it fell below parity with the USD in August.¹

Many international education insiders are questioning how these surprising currency fluctuations will impact the sector. Will international students continue to flock to the US? Or, with affordability concerns increasing as home currencies no longer go as far stateside as they once did, will more students consider other destinations?

Let’s unpack what the surging American dollar means for both students and destination markets.

American Dollar Hits Generational High

The US Dollar Index (USDX) measures the value of the USD relative to six other major foreign currencies.² This basket of foreign currencies includes the euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona. The euro accounts for the largest percentage of that basket (57.6%), and the Swiss franc the smallest (3.6%).

The USDX reached $109.66 on September 1, 2022.³ This was truly generational strength:

The last time the USDX was stronger than $105 was during the early 2000s. And before that, the early 1980s.

What’s more, this could be only the beginning for the USDX’s surge. Historically, when the USDX reached this level of strength, it remained high for several years. The last time the USDX surpassed $105 was in January 2000, and it did not fall below that level until December 2002, nearly three years later. During this time, the USDX peaked at nearly $120.

And when the USDX surpassed $105 in May 1981, it did not come back down until December 1986. This was a span of over five years. Incredibly, the USDX peaked above $160 during this stretch.

How a Strong USDX Impacts International Students in America

While the exchange rate will vary per individual source market, at the macro level, the USD’s current generational strength means that international students will generally find their home currency no longer goes as far in the US as it did in previous years.

For instance, by climbing from $94.25 in September 2021 to $109.66 in September 2022, the USDX grew 16%. This growth rate, as measured from September to September, is a record high over the past 40 years. And much of this surge occurred over the past six months, as the USDX grew 12% in September compared to March 2022.

International students just beginning their study abroad journey stateside will likely not have been prepared for such a sudden currency shift. Students relying on their personal savings to supplement their cost of living will likely feel their budgets strained even further during a time when, due to a high inflation rate, affordability was already a major concern.

While the strong USD is great news for both traveling Americans and working international students who plan to eventually move back home, it also means newcomers will likely face harsher budgets moving forward.

Will the British Pound Follow the Euro Into Parity?

With the falling euro reaching parity with the USD dominating news cycles, students may be interested to see how other destination market currencies compare.

The yearly average exchange rate of the British pound (GBP) to the USD has been relatively steady over the past seven years.⁴ However, diving deeper into the past twelve months tells a different story. From October 2021 to September 2022, the exchange rate of the GBP to USD fell from $1.36 to $1.15. This was a 16% drop.

Incredibly, Bloomberg argues that there is a 14% implied probability of the GBP hitting its all-time low of US$1.05 by the end of the year.⁵ Parity for the GBP may very well be on the horizon in 2023, a previously wild possibility. This currency fluctuation could result in international students seeing the UK as a more affordable destination than ever before—at least relative to the US.

Such a shift in student perspective would be yet another boon for the UK’s international education sector. The introduction of the Graduate Route helped the UK reach its 2030 goal for international enrollment nine years ahead of schedule. Also, students from all over the world have shown increased search interest in studying in the UK in recent years. It’s clear that the UK’s popularity has already grown exponentially among international students. The falling GBP may further that popularity if the UK’s education sector becomes more accessible to students who were previously priced out.

Canada and Australia Could Take Advantage of Surging USD

As the international education sector becomes more cognizant of fluctuating currencies, Canada and Australia could both be primed to benefit.

Generally, a student’s home currency will go further in the Canadian dollar (CAD) and Australian dollar (AUD) than in either the USD or the GBP.

From October 2021 to September 2022, the exchange rate of the CAD to USD fell from $0.80 to $0.76. This was a drop of 5%. The AUD exchange rate shifted a little bit more over this time frame, dropping from $0.74 to $0.68, or 8%. While neither currency’s exchange rate fell as drastically as the euro or GBP, both markets could leverage the affordability of their dollar as a competitive advantage over the US and UK.

Australia in particular has made aggressive strides to increase its competitiveness for international students. From extending post-study work rights, to launching the highly successful Study Australia Experience platform to reach more Latin American students, it’s no surprise that Australia has returned as a top destination for international students since reopening its borders. The current macroeconomics could further drive Australia’s impressive momentum in the sector.

What These Macroeconomics Mean for the Rest of 2022 and Beyond

The USD has surged to generational strength, and historically that strength has remained for several years. What does that mean for the coming academic years?

American institutions and policymakers will need to monitor their market closer than ever before. The number of student visas issued returned to pre-pandemic numbers in 2021. But new students relying on personal savings will likely face a stark economic shock now that their home currency no longer goes as far as it did six months ago. Institutions have a good opportunity to support their current students through these times of financial pressures. Doing so will help build strong bridges with future students.

Likewise, counsellors in the student recruitment market should make their students aware of the surging USD. Students already with tight budgets should have all of the available information in order to make the best decision for their financial situation. There are options for students across the sector: the UK, Canada, and Australia are obvious candidates. But another is Ireland. The Emerald Isle is already a growing destination for international students, with many world-class programs in STEM, business, and healthcare. Now that the euro has reached parity, Ireland’s popularity could increase even further, if students are made aware of the destination’s many opportunities.

We should close by highlighting that currency exchange is not an all-encompassing metric for a destination’s affordability. Cost of living indexes will vary not only from country to country, but also from state to state or province to province within individual countries. However, currency fluctuation remains an important macroeconomic development that tangibly impacts both students and the sector.

About the ApplyInsights Team

FOOTNOTES:

1. AP News, Euro falls below parity with the dollar. What’s the impact? August 2022.

2. Investopedia, What Is the U.S. Dollar Index (USDX)?. August 2022.

3. Yahoo Finance, US Dollar/USDX – Index – Cash (DX-Y.NYB).

4. Historical exchange rates for GBP, AUD, and CAD courtesy of OFX.

5. Bloomberg, Once Unthinkable, Parity for Sterling Is on the Horizon. September 2022.