The euro has enjoyed a nice ride in the last few weeks, but that has come to an end. The dollar is appreciating against the euro again, but there are other currency exchange traded funds (ETFs) that may be worth a look, too.
Despite a lackluster forecast by the FOMC last week, the U.S. dollar index still gained 1.8% while the euro depreciated by 2.1%, reports Matt Phillips for The Wall Street Journal. Bond spreads between the Irish and Portuguese bonds compared to the German 10-year benchmark is widening, which illustrates investors’ lingering concerns over solvency. Yikes. [Currency ETF Traders Bet on the Euro’s Demise.]
Pessimism over the state of the global economy may have pushed currency traders to the safety of the dollar. Furthermore, investors could have been using the dollar for carry trade purposes since the greenback hangs on low interest rates and is very stable. The Japanese yen has held the natural role for carry trades, but the yen is currently more expensive than the dollar. [Trends Spotted in Dollar, Yen and Euro ETFs.]
What to do, then?
According to ETF Professor for Benzinga, investors should focus on robust economies that could help strengthen their currencies and the chance that those countries will increase rates. Currency ETFs that fit the bill include:
- CurrencyShares Swedish Krona Trust (NYSEArca: FXS). Sweden doesn’t use the euro, and the country is one of Europe’s stronger economies.
- CurrencyShares Swiss Franc (NYSEArca: FXF). Another country that doesn’t use the euro. The Swiss franc also boasts some safe-haven appeal with investors.
- WisdomTree Dreyfus Indian Rupee ETF (NYSEArca: ICN). India is grappling with some inflation issues, but the Central Bank knows how to handle rates to deal with the problem.
- WisdomTree Dreyfus Brazilian Real ETF (NYSEArca: BZF). Brazil is also looking at some inflation, and rate hikes are bound to mitigate the problem.
- WisdomTree Dreyfus Emerging Currency ETF (NYSEArca: CEW). This fund includes promising emerging market currencies like the Chinese yuan and the Thai baht, which are bound to increase rates faster than the developed world.
- UltraShort Yen ProShares (NYSEArca: YCS). The Japanese yen can’t appreciate forever. The economy is heavily reliant on exports, which requires a weaker currency, and the Central Bank may have to intervene.
For more information on world currencies, visit our currency category.
Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.
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. 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.