Currency risk on US investments: how the dollar changes returns and what hedging costs

Every US stock, fund or bill you own from abroad is two investments at once: the asset itself, priced in dollars, and the dollar, priced in your own currency. When you sell and convert back, both moves land in your account, and in some years the currency move is the bigger of the two.

This guide shows how to combine the two returns, works through the same 10% US gain for investors in India and South Africa using official exchange rates, and explains how currency-hedged share classes work and what they really cost. It describes trade-offs, not forecasts; nobody can reliably predict exchange rates. Your country's rules decide whether you may hold foreign assets or currency contracts and how currency gains are taxed, so check with your tax authority and your central bank or securities regulator before acting. The invest-from-abroad hub collects the US rules that apply to every route.

How does the dollar change your return at home?

Your home-currency return is the dollar return compounded with the change in the dollar's value against your currency.

If a fund gains 10% in dollars and the dollar also rises 5% against your currency, you make 1.10 × 1.05 − 1, or 15.5%. If the dollar falls 5% instead, you make 1.10 × 0.95 − 1, or 4.5%. The cross term is why the two moves do not simply add up.

Over long periods the currency effect can be large. Using the Federal Reserve's H.10 rates, the dollar rose about 42% against the Indian rupee and 19% against the South African rand in the ten years to October 23, 2026, and fell about 3% against the euro. That added roughly 3.6% a year to an Indian investor's US returns and 1.8% a year to a South African's, and took about 0.3% a year off a euro investor's. The study of the dollar against world currencies covers 29 currencies using European Central Bank reference rates to October 30, 2026, a week later than the Fed figures above. On that basis the dollar rose 42.1% against the rupee and 20.2% against the rand over ten years, and fell 2.2% against the euro.

What happens to a 10% US gain in rupees and in rand?

The same dollar gain became almost 19% for an Indian investor and just over 5% for a South African one over the year to October 23, 2026.

Neither result says anything about next year. The rupee has weakened against the dollar over most of the past decade, while the rand has moved in both directions, and either pattern can change. What the example shows is the size of the effect: against the rupee, the currency move was nearly as large as the 10% market gain.

What does today's exchange rate mean for your money?

Live rates show what a dollar holding is worth at home right now, and how much the conversion itself costs.

Live mid-market quotes for the two currencies in the example: 1 USD = 94.9053 INR (Nov 2, 2026) and 1 USD = 16.7140 ZAR (Nov 2, 2026). The table below converts dollar amounts into rand at the mid-market rate and after markups of 1% and 2%, the kind of margin banks and platforms build into the rates they quote.

On a $50,000 holding, each percentage point of markup costs $500, roughly three months of interest at a 4% yield, and you pay it twice, on the way in and on the way out. The mid-market exchange rate explains where the reference rate comes from, exchange rate markups shows how to find the margin in any quote, and the currency converter covers other pairs, such as dollars to rupees.

Why does currency risk matter more for bonds and cash than for stocks?

Because their returns are small and steady, a normal year's currency move can outweigh them, while stocks swing enough on their own that currency is one large risk among several.

A Treasury bill yielding close to 4%, about where today's T-bill rates sit, earns that much in dollars over a year. The one-year moves in the example, about 8% against the rupee and 4% against the rand, were each as large as a full year of that interest or larger, and the dollar also moved almost 4% against the euro over the same twelve months. For a holder of dollar cash or bills, the exchange rate often decides the result. The same is true of dollar stablecoins, which track the dollar rather than your currency; top stablecoins lists the largest. Treasury bills for non-US investors covers buying bills, and holding US dollars abroad compares places to keep dollar cash.

Stocks are different. The S&P 500 can rise or fall 20% or more in a year, so the currency adds to an already wide range of outcomes rather than dominating it. Over very long periods, currency moves tend to matter less for stocks than the market itself, but they can still add or subtract a few points a year, as the ten-year figures above show.

What is a currency-hedged share class?

It is a version of a fund that holds the same US assets but uses currency forwards to remove most of the dollar's moves against your currency.

A forward is a contract to exchange currencies at a fixed rate on a future date. A euro-hedged S&P 500 class, for example, owns US shares and sells dollars forward for euros, so if the dollar falls the forward gains roughly what the shares lose in euro terms, and if the dollar rises the forward gives up that gain. The iShares S&P 500 EUR Hedged UCITS ETF (Acc) tracks an index that hedges with one-month currency forwards, according to its key information document, and charges 0.20% a year, against 0.07% for the unhedged iShares Core S&P 500 UCITS ETF (Acc).

Hedged classes are most common for major currencies such as the euro. Most investors in emerging-market currencies have no hedged version of popular US funds to choose from, and some local rules restrict the forward contracts needed to build one. Where Irish-domiciled funds are the practical choice, US vs Irish-domiciled ETFs covers the tax and access differences.

How much does currency hedging cost?

Roughly the gap between US interest rates and your own: hedging costs you if your rates are lower, and pays you if they are higher.

A forward rate is not a forecast. It is today's exchange rate adjusted for the interest each currency earns until the delivery date, a link economists call covered interest parity. A euro investor who hedges dollar assets is effectively swapping dollar interest for euro interest, so when US rates are above euro rates, the hedge loses that gap every year. An investor whose home rates are above US rates collects the gap instead.

The table compares each rate with the US federal funds target range of 3.75% to 4.00%. Real hedges are priced off market interest rates for the hedge's term rather than policy rates, and trading costs and higher fund fees come on top, so treat the figures as a guide. A positive carry is not free money either: currencies with higher interest rates have often weakened against the dollar over time, and the extra interest is, in effect, payment for that risk.

How did hedging work out for a euro investor over the past year?

Over the year to September 30, 2026, hedging cost a euro investor about 6.5 percentage points, because the dollar rose and the hedge carried a cost.

In a year when the dollar falls against the euro, the order flips, because the hedge removes the currency loss as well as the gain. The cost does not flip, though: as long as US rates stay above euro rates, a euro investor pays it every year.

When does hedging fit, and when does it not?

The useful question is which currency you will spend the money in, and when.

• Money you will spend at home soon, such as a deposit on a house within a few years, is exposed to the full currency swing, so hedging or keeping it at home reduces risk.
• Money you will spend in dollars, such as US tuition or travel, is already matched; converting it back and forth adds cost without removing risk.
• Long-term stock holdings face currency swings that partly average out over decades, so many investors accept them rather than pay a yearly hedging cost, while others hedge part of the holding.
• Dollar cash and short-term bonds carry little risk of their own in dollars, so currency is most of what can go wrong; a hedge or a local alternative changes the result most here.
• The cost depends on where you live, so the same hedged fund is expensive for a euro investor and cheap or even rewarding for an investor whose rates are higher than US rates, if such a class exists.

What are the risks of hedged and unhedged US investments?

Leaving the currency open exposes you to its swings, while hedging adds cost and gives up gains, so both choices carry risk.

• Exchange-rate swings. An unhedged holding can lose in your currency while rising in dollars, and the swing can last years.
• Timing risk. If you need the money when your currency is strong, you convert at a bad rate, whatever the long-run average.
• Hedging cost. Investors in low-rate currencies pay the interest-rate gap every year, which compounds over a long holding.
• Imperfect hedges. A hedge sized at the start of the month does not cover gains or losses the fund makes before the next reset, and the higher fee is charged whether or not the hedge helps.
• Fewer choices. Hedged classes are usually smaller, with wider trading spreads, and many currencies have none.
• Conversion costs and controls. Markups apply each time you convert, and some countries limit how much currency residents can buy or bring home.
• Tax effects. Many countries measure gains in local currency, so a currency move can create taxable income even when the dollar value has not changed; the guide to reporting US investments at home covers the common rules, and a local tax adviser can confirm how yours apply.

How should you check your currency exposure?

Start from the currency of your future spending, then measure how much of your savings sits in other currencies.