Investors in dollar exchange traded funds (ETFs) may have predicted what the International Monetary Fund just announced: that after two straight quarters of decline in the dollar’s share of allocated global foreign-exchange reserves, it rose in Q4 of 2009.
For most of 2009, the dollar was under pressure amid concerns of the United States’ mounting deficits and loose fiscal policy, reports Fabio Alves of The Wall Street Journal. Bearish sentiment coupled with near-zero interest rates prompted investors to borrow in dollars and invest in higher yielding currencies. As a result, the euro reached a 15-month high of $1.5145 in late November 2009. But that didn’t last long.
As positive economic news has been trickling out of the United States, concerns have been growing over the fiscal health of nations overseas, particularly those in the eurozone. Heavy loads of debt in Spain, Greece, Portugal and Italy have hit the euro hard. China is another issue; U.S. officials are debating whether to accuse the country of currency manipulation. Many believe the yuan is being kept artificially weak in order to encourage exports.
- WisdomTree Dreyfus Chinese Yuan (NYSEArca: CYB)
- CurrencyShares Euro Trust (NYSEArca: FXE)
Those concerns have led to a recent rally in the dollar against foreign currencies, as can be seen in PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP).