Effects of currency fluctuations on GBP/USD stocks/ETFs

With the news that sterling is plunging, I was wondering how currency fluctuations will affect the price of stocks / ETFs.

Would I be right in thinking:

  • For shares denominated in USD, a decrease in the value of the pound would effectively decrease of the stock for UK investors. For example, if i buy 100 shares at 1.30 today, I spend £130. If the share price if unchanged in USD, then those 100 shares are only worth £100 if GBP/USD reach parity. (But conversely, I suppose you could potentially make extra if you successfully "bet" on a low point for £/ exchange AND the stock is on an upward trajectory?)

  • For GBP denominated ETFs that track US markets (S&P 500 for example) currency fluctuations are built into the price. So, even if the USD market price were static, the GBP price would decrease as the value of the pound decreases?

(It’s been a long day, so if I’ve got this totally wrong just about. I’ve confused myself at least 12 times).


I’ve been thinking about this too today. Have my eye on a few US stocks but wondering if I’d be better focusing on UK stock at the moment and The S&P 500 via an ETF.

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  1. A decrease in the value of the pound would effectively decrease a US stock for UK investors? It’s the other way around. If you start with £100 and buy US stock at an exchange rate of £1=$1.30, then you will have $130 worth of stock. Say the pound now devalues to a rate of £1=$1.20, but you of course have $130 worth of stock, which will be worth £108 and you have £8 in profit. If it falls to parity your $130 will be worth £130.
  2. For GBP denominated ETFs that track US markets (S&P 500 for example) currency fluctuations are built into the price. This is true for unhedged ETFs and have non-GBP as their base currency (you can find the base currency in the information document). Hedged ETFs are actively managed to minimise currency fluctuations but that will never be perfect. As of right now, I believe all Freetrade ETFs are unhedged.

True for stock ETFs, although there are 2 hedged bond ETFs:

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For me SimplyWallSt takes care of that (at least as a rough estimate), as it always breaks down the change based on your currency:

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The decrease in the value of the pound, compared to USD, meant that if anyone held US stocks in their portfolio, gained in value.

It also meant that anyone who bought US stocks yesterday paid more than they would have if they had bought it the day before.

So your currency decision would be, do you think the pound will continue to weaken against the dollar? If you do, then US stocks become more attractive. If you think the pound will recover, then you might want to stop buying US stocks as the recovery can potentially wipe out any gains from that stock.

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So in leymans terms, the more the pound drops the more “expensive” US stocks become to buy…the higher the pound is “the more “cost effective” US stocks will be?

I’m up with all the terminology and reading balance sheets, but economics and currency I don’t have a clue lol

*what I’m really trying to ask, is now a good time for a UK investor to be buying single American stocks? X

Precisely. I’m holding out till when hopefully one day we get towards of $1.50/£. More chance that rate will go up than further fall so more risk of losing

I’m pretty heavily exposed to the dollar. Everything is disproportionately up. Should I sell and re buy at a later date? I’m struggling what to decide here

This is not investment advice but you should think about the potential cuts the Federal Reserve will make (driving the dollar down) versus the Brexit conundrum (driving the pound down). Whichever is stronger will control the currency direction.

In general, you are safer ‘taking profit’ and having the funds to reinvest then sitting on the money. You can always reevaluate and enter the market in a less volatile position.