How Currency Risk Can Impact Portfolios

April 12, 2017

International investment strategies such as emerging markets debt and unconstrained fixed income have seen significant volatility over the last few years, largely driven by gains or losses from currency movements. Over this period, the U.S. dollar generally strengthened due to gradually rising interest rates and stronger growth in the U.S. relative to other developed countries. The euro and yen generally declined versus the dollar during this time but experienced bouts of short term strengthening versus the dollar. Emerging markets currencies largely weakened throughout this period, but enjoyed a substantial rally over the past year. How does an investor make sense of these movements?

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