Europe and Japan’s currencies, along with related exchange traded funds (ETFs), may showing strong gains, but the effects on their economies may not be so beneficial.
A weak U.S. dollar helps U.S. manufacturers, U.S. exporters and U.S. multinationals, writes Gary Gordon for ETF Expert. But a weak dollar means foreign exporters and foreign manufacturers are hurting as they try to sell to the U.S. market. (What’s so great about a weak dollar?)
For example, the strong euro is bad for business in the Eurozone. In August, exports dropped 6% from the previous month because of an appreciating euro. (More on the eurozone).
- CurrencyShares Euro Trust (NYSEArca: FXE): up 5.1% year-to-date
Japan is another country watching its currency appreciate. The Japanese yen is likely to stay stable since the island nation is heavily export dependent.
- CurrencyShares Japanese Yen Trust (NYSEArca: FXY): up 0.2% year-to-date
Both FXE and FXY are in an uptrend, tracking above their 50-day and 200-day moving averages.
As it stands, Europe and Japan don’t have much room to further decrease the value of their currencies through monetary policies since interest rates are already so low. Still, the U.S. dollar can’t go on depreciating forever.
For more information on world currencies, visit our currency category.
Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.
Max Chen contributed to this article.