Why Currency Moves Matter More Than You Think for Your Portfolio

September 2025

By Will Glyn

For decades, it’s been hard to ignore the US stock market. The S&P 500 – home to household names like Nvidia, Microsoft, and Alphabet (Google’s parent company) – has delivered stellar results, averaging more than 15% a year in sterling terms over the past decade.

But 2025 has been a reminder that it’s not just markets that matter. Currency movements can significantly change what investors actually take home.

This year, the S&P 500 has returned 11.21% in US dollar terms. For UK investors, however, those gains shrink to just 3.07% once converted into sterling – largely because of a sharp fall in the value of the US dollar whilst GBP has strengthened.

Why Currency Matters

For equities, currency usually plays a smaller role than the underlying market performance. Shares themselves are volatile, so exchange rate changes often get lost in the noise. But when currencies move sharply – as they have this year – the impact becomes hard to ignore.

The US dollar suffered its weakest first half in over 50 years against a broad basket of global currencies. For UK investors, the relevant comparison is pound versus dollar: sterling rose from $1.24 in January to $1.34 in September, an 8% move. That’s almost equivalent to an average year’s worth of global equity returns – and there are still months left in 2025.

Currency Cuts Both Ways

While this year has hurt, currency isn’t always a headwind. Over the last decade, the S&P 500 gained 333% in sterling terms versus 282% in dollars. The dollar’s strength against the pound actually boosted UK investors’ returns.

This is why currency can sometimes feel like a hidden risk – but also an unexpected ally. When sterling weakens, overseas holdings can provide an extra lift. When sterling strengthens, they can drag down returns.

Hedging the Risk

For those who want US exposure without the currency swings, hedging is an option.

• Funds and ETFs: Many offer “hedged” share classes that neutralise the effect of currency moves. These are often labelled with “H” or “hedged” in the name.
• Individual shares: Hedging is more complex. Some platforms let you hold investments in their local currency, but fully hedging individual stocks is usually difficult for retail investors.

The trade-off is that hedging reduces volatility but also trims returns when currency movements would have been in your favour.

Waiting It Out

Currency trends can turn quickly. The US dollar could rebound if US policy shifts, or sterling could weaken depending on how markets respond to the UK Budget later this year. Both would benefit unhedged UK investors.

As with markets, currency direction is notoriously hard to predict. Inflation, interest rates, central bank policy, and even political surprises all feed into exchange rates.

For some, accepting that added volatility is part of global investing. For others, hedging provides peace of mind.

Beyond the US

The US isn’t the only market where currency matters. Japan’s Nikkei 225 rose 68% in yen over the past decade, but only 11% in sterling. Unless you stick solely to UK investments – which creates its own risks – some level of currency exposure is unavoidable.

The Bottom Line

Investing overseas offers diversification and access to some of the world’s strongest companies, but it also brings currency risk. Sometimes it’s negligible. Other times, like this year, it makes a big difference.

The key is to understand how currency affects your portfolio and decide whether to embrace the swings or pay a small premium to smooth them out.

If you're concerned about currency risk with your investment portfolio, please get in touch and we can advise of any changes that might be beneficial.

Will is an Independent Financial Adviser with over a decade of experience helping expats make the most of their international status.