The dollar’s recent weakening has brought foreign-currency exchange traded funds (ETFs) into the spotlight. While they have been performing well, some experts caution that foreign markets and their currencies can be more volatile.

As the dollar continues to decline, investors are waiting to see what the Federal Reserve will do next. While many assume another rate cut could be near, the Fed’s most recent move might have been aggressive enough to justify leaving the interest rate as it is. Some experts think that if the rates stay as they are, the dollar might stabilize and begin trading in a narrow range against other major currencies like the euro and the yen, reports J. Alex Tarquinio for The International Herald Tribune. The ETF that represents the euro is the CurrencyShares Euro Trust (FXE), which is up 9.9% year-to-date. The CurrencyShares Japanese Yen Trust (FXY), which is up 5.5% for the last three months, represents the yen.

If the dollar stabilizes and starts rising, these international currency-focused ETFs could be affected. Complicating matters is the fact that the dollar might rise against some currencies while falling against others because each currency corresponds to its own economy. ETF investors must take in all the various factors that influence currency ETFs before investing in them.

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.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.