Beginner’s Guide: How EUR Currency Movements Impact Your European and US ETF Returns

Ever wondered why your ETF returns sometimes don’t match the index performance you see in the headlines? If you invest from Europe, currency movements—especially those of the euro—can significantly impact your returns, even if you’re buying European-domiciled ETFs. Understanding how euro affects ETF returns is crucial for making smarter decisions and avoiding common pitfalls. As we covered in our Complete Beginner’s Guide to European ETFs: How to Start Investing in 2026, choosing the right ETF is just the start. This tutorial will take you step-by-step through how EUR currency swings affect both European and US-exposed ETFs, with actionable tips and concrete EUR-based examples.

Step 1: Understand the Basics of Currency Risk in ETFs

What to do: Grasp the concept of currency risk and why it matters for European investors buying both European and US ETFs.

Why it matters: Most European investors think buying a EUR-listed ETF shields them from currency swings. In reality, the underlying assets (the stocks or bonds the ETF owns) determine your real exposure. If those assets are in USD, GBP, or JPY, changes in the EUR’s value against those currencies will impact your returns—sometimes positively, sometimes negatively.

• Unhedged ETFs: These do not protect you from currency movements. Your returns will reflect both the performance of the underlying assets and changes in the EUR exchange rate.
• Hedged ETFs: These use financial instruments to offset currency effects, aiming to isolate the asset’s performance in EUR terms.

What can go wrong: Ignoring currency risk can lead to surprises. For instance, if the US stock market rises 10% in USD but the EUR strengthens by 8% against the USD, your EUR return could be much lower—or even negative.

Step 2: See How EUR/USD Changes Affect US Equity ETFs (CSPX Example)

What to do: Calculate how EUR/USD movements impact your returns when investing in a popular unhedged US equity ETF—iShares Core S&P 500 UCITS ETF (CSPX).

Why it matters: CSPX is EUR-listed and UCITS-compliant, but its underlying stocks are all priced in USD. Here’s a simplified calculation:

• You invest €1,000 in CSPX when 1 EUR = 1.10 USD.
• Suppose the S&P 500 rises 10% in USD over the year.
• But by year-end, EUR strengthens: 1 EUR = 1.20 USD.

Calculation:

1. Your ETF grows by 10% in USD terms: €1,000 × 1.10 = €1,100 (in USD equivalents)
2. But when converting back to EUR at the new rate: $1,100 ÷ 1.20 = €916.67
3. Result: You’re down €83.33, or -8.3%, despite the S&P 500 rising 10% in USD!

What can go wrong: Many investors forget that a stronger euro can reduce or even reverse gains from US markets. This is especially true in years when the EUR appreciates sharply against the USD.

Step 3: Compare Hedged vs. Unhedged ETFs (EUR Hedged S&P 500 Example)

What to do: Understand how a hedged ETF can protect you from currency swings—and the trade-offs involved.

Why it matters: Some ETFs, like the iShares S&P 500 EUR Hedged UCITS ETF (IUES), use derivatives to offset USD/EUR movements. This means your returns closely match the S&P 500’s performance, regardless of currency changes.

Example:

• You invest €1,000 in IUES (hedged).
• The S&P 500 rises 10% in USD; EUR strengthens from 1.10 to 1.20 USD.
• With hedging, you still get approximately 10% in EUR terms: €1,000 × 1.10 = €1,100.

What can go wrong: Hedged ETFs often have slightly higher fees (TER), and hedging is not always perfect. Over long periods, costs can add up, and in rare cases, the hedge may not fully protect you (e.g., extreme market events).

Step 4: How EUR Affects Global Equity ETFs (VWCE Example)

What to do: Analyze a popular all-world ETF—Vanguard FTSE All-World UCITS ETF (VWCE)—to see how multiple currencies impact EUR-based investors.

Why it matters: VWCE holds stocks from the US, Europe, Japan, UK, and emerging markets. The majority of assets are in USD, but there is also GBP, JPY, and more. This means your EUR returns are influenced by several currency pairs—primarily EUR/USD, but also EUR/GBP, EUR/JPY, etc.

• You invest €2,000 in VWCE.
• Suppose the USD rises 5% against the EUR, GBP falls 3%, and JPY is flat.
• If the underlying stocks are flat, your ETF value could still rise due to the USD appreciation (since over 60% of VWCE is in USD assets).

What can go wrong: Currency moves can add hidden volatility to your returns—sometimes boosting them, sometimes dragging them down. If you expect to need your money soon, this can be a risk.

Step 5: Decide When (and If) to Hedge Currency Risk

What to do: Decide whether you want to use hedged or unhedged ETFs in your portfolio, based on your goals and time horizon.

Why it matters: Currency hedging can reduce short-term volatility, but over the very long term (10+ years), currency movements tend to “wash out.” If you plan to spend/invest your gains in EUR (e.g., for retirement in Europe), you may want to hedge. If you are investing for the long run and can handle fluctuations, unhedged ETFs may offer lower costs and, over time, similar results.

• Short-term goals: Consider EUR-hedged ETFs to reduce surprises.
• Long-term investing: Many passive investors accept currency risk for simplicity and lower fees. See how this fits into your own globally diversified ETF portfolio.

What can go wrong: Over-hedging can increase costs and complexity. Under-hedging can lead to unexpected losses if currencies move sharply against you at the wrong time.

Common Mistakes

• Confusing listing currency with asset currency: Just because an ETF trades in EUR does not mean you avoid currency risk. Always check the underlying asset currencies.
• Ignoring hedging costs: Hedged ETFs may have higher fees and imperfect tracking. Always compare the TER and past performance.
• Focusing only on short-term moves: Currency swings can help or hurt in the short term, but for long-term investors, they often balance out.
• Not diversifying across regions and currencies: Relying solely on US or EUR assets can increase your risk. Consider global diversification.

Next Steps

• Review your current ETFs—check their factsheets for “currency risk” and “hedged/unhedged” status.
• Decide if you want to add EUR-hedged ETFs for certain exposures.
• Simulate different scenarios using a spreadsheet: try plugging in different EUR/USD rates to see how your returns would change.
• Explore more ETF strategies in our Complete Beginner’s Guide to European ETFs and consider reading about how to use CSPX for efficient US exposure.
• If you want to try buying an ETF, follow our step-by-step guide to buying your first ETF on Trade Republic.

Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always do your own research and consider consulting a qualified financial advisor before making investment decisions.