It is important to have an understanding of an index’s sensitivity to currency rates, as there is typically a correlation between the relative strength of a country’s currency and the value of its domestic indices.
For example, the value of American indices generally increases with the demand for US Dollars. This may be partly due to foreign investment – as a growing number of traders invest in US stocks, they must first purchase USDs to buy American stocks, in turn causing US indices to increase in value.