Below we chart YTD currency returns by type of return. Often forgotten in FX is the importance of interest; while spot rates can change dramatically, the interest rate differentials between currencies can add up significantly over time. Below we show the spot return (changes in the FX rate; left axis) and the interest return (interest differential, bottom axis). For most developed market currencies, interest rate differentials are relatively small, so there isn’t much of a return to be found there; spot returns dominate. For EM, however, it’s a much different story. Interest rates are higher and can overcome significant changes in the spot rate. For instance, Argentina’s peso is down over 15% YTD in the spot market, but a monster interest rate return close to 20% has made ARS a profitable long versus USD on the year. As shown, high interest returns have generally led to higher spot rates on the year, especially in EM. In the final chart below, the overall weakness of the USD is visible; only three major crosses are lower versus the buck on the year, and there are 7 currencies up more than double digits versus the USD YTD in total return terms.