Foreign currency exchange traded funds (ETFs) continue to benefit from the weak U.S. dollar. The dollar hit a new low against the euro in Friday trading. In the end, the dollar was higher against the euro and it slipped against its other major counterparts, as the Group of Seven leading industrial nations’ finance ministers gathered to meet in Washington. Although financial officials will likely discuss the dollar’s recent weakness, analysts are not expecting any policy actions to directly address it, reports Lisa Twaronite for MarketWatch. Interest rate expectations also have added to the dollar’s woes. Lower rates bite into the returns on dollar-denominated assets and are therefore usually negative for a currency. Other factors that are negative for a weak dollar, according to the Federal Reserve Bank of Chicago, include:

  • Consumers face higher prices on foreign products and services.
  • Higher prices on foreign products contribute to higher a cost-of-living.
  • U.S. consumers find traveling abroad more costly.
  • Harder for U.S. firms and investors to expand into foreign markets.

However, there are some other advantages that occur from a weak dollar, such as:

  • U.S. firms find it easier to sell goods in foreign markets.
  • U.S. firms find less competitive pressure to keep prices low.
  • More foreign tourists can afford to visit the U.S.
  • U.S. capital markets become more attractive to foreign investors.

Some of the foreign currency ETFs that are doing well and their year-to-date performance include:

  • CurrencyShares Euro Trust (FXE) – up 11.5%
  • CurrencyShares Australian Dollar Trust (FXA) up 19.0%
  • CurrencyShares British Pound Sterling Trust (FXB) – up 9.0%

Read the disclosure, as Tom Lydon is a board member of Rydex Investments.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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