World currencies have already been gaining against the U.S. dollar, but talks of another quantitative easing by the Fed has sent more speculative money into foreign currencies and related exchange traded funds (ETFs).
With the purchasing power of Americans in question, foreign countries are trying to use exchange rates to their own advantage in an attempt to maintain their own growth at the expense of rival countries, reports Graham Bowley for The New York Times. Central Banks have already intervened in their foreign exchange markets to try and artificially weaken their own currencies as a way to help their own exporters. [Currency ETFs Get Ready to Rumble.]
As the dollar continues to depreciate, emerging market currencies, more notably in Asia and Brazil, are quickly appreciating. Speculative money is following the growing strength of the emerging markets, which could threaten to overheat those economies, and that inflow may increase if investors ditch the U.S. economy in favor of stronger emerging economies after another quantitative easing takes hold. [6 Currency ETFs to Diversify from the Dollar.]
Currency traders may invest in ETFs or ETNs that are based on currency strategies, but potential traders should note that the currency markets are extremely volatile and very risky, writes John F. Wasik for The New York Times.
Funds that hold a basket of foreign currencies or invest in single-currency ETFs or ETNs may be a good option. Additionally, there are some currency funds that utilize leverage to double long or short currencies in an attempt to provide greater returns for falling or gaining currencies, but they also come with the added risk of increasing losses.