When the Federal Reserve announced yesterday that it would grow its balance sheet, that move also comes with implications for currency exchange traded funds (ETFs).
The Federal Reserve said it would expand its balance sheet to include another $750 billion of agency mortgage-backed securities, $100 billion in agency secrities and $300 billion in longer-term Treasury securities over the next six months.
After the announcement, foreign currencies rallied and ultimately brought the rally seen in the U.S. dollar to a grinding halt, leading to its biggest daily drop in more than two decades. Yesterday, the dollar fell 3.8% against the euro and 3.6% against the pound.
The long-term value of the dollar is now being questioned by some officials at Asia’s top think tanks, reports Reuters. Will the dollar remain a key global currency when all is said and done? Asia hopes that any decline in the dollar will be gradual to avoid more shocks to financial systems. For the time being, many market participants believe that the latest stimulus could lead to a prolonged decline in the dollar’s value.
If this is true, we could be looking at upswings in foreign currency ETFs in the near future. Watch the trend lines to see if this bears out, though. Note that these funds have already popped above their 50-day moving averages, and in some cases, the 200-day.
- WisdomTree Chinese Yuan (CYB): up 0.4% in the last week
- WisdomTree Dreyfus Brazilian Real (BZF): up 3.2% in the last week
- CurrencyShares Swedish Krona (FXS): up 9.1% in the last week
- CurrencyShares Swiss Franc (FXF): up 1.2% in the last week
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.