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Dollar "pounding" is piling pressure on Brits' pension pots

ended 06. July 2025

With the Dollar under pressure against the Pound, and many UK (pension) investors exposed to US equities, what will the ramifications of this be on their portfolio performance? Do fund managers hedge against this volatility or are investors with significant sums invested in major US indices left to the mercy of the forex markets? Could a protracted drop in the Dollar see a drop in investors’ returns?

4 responses from the Newspage community

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Harry Mills
Director at Oku Markets
UK pension investors have previously benefited from the twin tailwinds of surging US stock markets and a strengthening US Dollar.

This meant their holdings in US equities appreciated not only in terms of local asset performance but also gained further when converted back into Sterling. However, the double-digit depreciation in the dollar so far in 2025 has eroded gains, dampening portfolio performance for unhedged UK pension investors despite continued strength in US equities.

This currency drag could significantly impact international investor returns, often as much as the underlying asset performance itself. The current pounding of the Dollar is undoubtedly piling pressure on Brits' pension pots.
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Tony Redondo
Founder at Cosmos Currency Exchange
A weaker US dollar reduces the sterling value of US equities for UK pension investors, lowering portfolio returns. For example, a 5% dollar drop cuts the value of US holdings by 5% in sterling terms. Many UK pension funds, heavily exposed to US indices like the S&P 500, face losses, especially if unhedged. Some managers use currency hedging (e.g., futures, ETFs) to mitigate forex volatility, but high costs and partial hedging (often 60% or less) leave investors exposed. A prolonged dollar decline could further erode returns, worsened by falling US stocks. Diversification into non-US equities (e.g., Europe, emerging markets) or commodities like gold can offset risks. Investors should monitor US policies (e.g., tariffs) and consider hedged funds for short-term protection, though long-term currency effects may balance out.
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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
Anybody with exposure to US company shares within their pension may see a dip in the overall portfolio value, even if the share prices are stable or rising. This however depends on whether the pension fund manager has proactively hedged any of the currency exposure. This effectively removes any positive or negative impact from currency values on the overall portfolio.

It does work both ways though, and there are different schools of thought on whether hedging makes sense; not least based on the strategy of the fund manager.
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Prem Raja
Head of Trading Floor at Currencies 4 You
With GBPUSD pushing higher, UK investors holding significant exposure to US equities are increasingly vulnerable to FX risk. Even if the S&P 500 performs well, a weakening Dollar can erode those gains once converted back into Sterling. A 10% drop in the Dollar can almost cancel out a 10% equity return. Some fund managers hedge currency exposure, but many passive index funds do not, leaving investors vulnerable to currency swings. Hedging strategies come at a cost and aren’t always deployed unless volatility becomes persistent. If the Dollar’s decline continues, it could materially impact portfolio returns. For UK investors relying on US exposure, especially retirees drawing income from Dollar-based assets, it’s crucial to understand whether their funds hedge or not, and to consider their own FX risk strategy if left unhedged.