Currencies
Why exchange rates matter for every international investor, what moves the dollar and the euro, and how currency risk changes your real returns.
Every investment is priced in a currency. If you live in Europe and buy US stocks, your return depends on both the stocks and the EUR/USD exchange rate.
What moves currencies
- Interest-rate differences — higher rates attract capital and tend to strengthen a currency.
- Growth and trade balances.
- Safe-haven flows — in a panic, investors often buy the US dollar.
Currency risk in practice
A US investment that gains 10% in dollars returns only about 0% to a euro investor if the dollar falls 10% against the euro in the same period — and about 20% if the dollar rises 10%. Hedged ETF share classes remove most of this effect at a cost related to the interest-rate difference.
Instruments
FXE follows the euro against the dollar. UUP follows the US Dollar Index — the dollar against six major currencies, mostly the euro.
Role in a portfolio
Currencies move less than stocks but trend for years. The dollar's tendency to rise in crises can make it a useful hedge. For most private investors the key point is simply to know which currency risk they carry.
Markets in this asset class
Put it into practice: a free account unlocks equity curves and signals for six core markets and the full glossary.
🔒 Open free accountEducational content, not investment advice. Disclaimer.