As the threat of the fiscal debacle strangling Greece spreading to other eurozone members heightens, the euro exchange traded funds (ETFs) have gone into a nosedive. Currency traders aren’t left with many other ideal options to choose – except for the greenback.
The U.S. dollar has appreciated against the other main global currencies that are internationally traded and is still held as reserves by Central Banks, according to The Economist. The dollar has gained the most against the euro, trading around $1.28 on May 6 as compared to $1.43 at the beginning of the year. [Currency ETFs Make Moves as Europe’s Debt Crisis Widens.]
Worried traders are on a quest for shelter, and they’re finding a lot of it in the dollar these days.
Currency observers believe the euro’s decline against the dollar has more than just momentum behind it. For instance, business cycles favor it, with the American recovery much stronger than that of the eurozone. The European Central Bank also won’t be raising interest rates anytime soon. Furthermore, the weaker euro allows southern eurozone exporting members to compete with Germany. [The Dollar ETF’s Next Move.]
However, the cheaper euro will hurt American exporters that target eurozone markets.
For more information on the greenback, visit our U.S. dollar category.
- PowerShares DB U.S. Dollar Index Bullish (NYSEArca: UUP): up 7.5% year-to-date
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.