Currency movement – Often, in reports, companies and investment managers will give the reason for performance to to be the strengthening or weakening of one currency against another.
Currency movements (unless hedged) can have a significant impact on the performance of a portfolio.
Taken from the point of view of a UK based investor who holds sterling-denominated shares in an investment company with US dollar investments:
- if the US dollar strengthens (rises) against the UK pound, the investor will see a rise in the value of the US holding
- if the UK pound weakens (falls) against the US dollar, the investor will see a rise in the value of the US holding
Therefore:
- if the US dollar weakens (falls) against the UK pound, the investor will see a fall in the value of the US holding
- if the UK pound strengthens (rises) against the US dollar, the investor will see a fall in the value of the US holding