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Thus, the upward movement recently observed above 3000 points simply corresponds to the evolution of the EUR/USD currency pair, more precisely to the weakening of the American currency.

This has important implications: if a European company has done business in the US without hedging its currency risk during the period in question (last 30 days), it has lost about 4 margin points.

If a European has converted euros to invest in the USA in the last 30 days, if he balances his winning positions on the S&P 500 and changes his USD again into EURO, he has not made any money either.

This rise in the S&P 500 is explained by the weakness of the dollar, NOT by the lifting of lockdowns around the world, NOT by better than expected US economic data, NOT by the expansion of the Fed's balance sheet, NOT by infections Covid in retreat, NOT by hedging the Hedge Fund shorts, but again just by the weakness of the US currency relative to the euro!

We all tend to assess the performance of our investments against the currency we use in our daily lives, when at least we should do so against a basket of currencies. Indeed, if the value of an asset appreciates only in our reference currency, this means that it is not the value of the asset which increases, but that of your currency which decreases.

Most investors tend to underestimate the importance of currency hedging when trading and/or investing in a currency different from the one they use in their daily lives. To illustrate this, let's take the example of a European who decides to invest in the United States and why it is extremely important to protect oneself against unexpected, expected or anticipated variations in exchange rates.

Since the end of May, the S&P 500 index has been up about 4% in a few weeks. However, once denominated in EURO, the performance of the index becomes… zero or almost!

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