Concern over the Eurozone financial crisis is nearly forgotten, with the euro currency and related exchange traded fund quickly becoming the go-to safe haven bet as Fed policy and now U.S. fiscal problems put the U.S. dollar in question.
The CurrencyShares Euro Trust (NYSEArca: FXE) has gained 1.3% over the past month and is up 3.4% year-to-date, whereas the PowerShares Dollar Bull ETF (NYSEArca: UUP) declined 0.9% in the last month and is down 1.7% so far this year.
The euro currency is this year’s best performer among a basket of 10 developed-market currencies, and the euro’s correlation to 20 of the most traded emerging market currencies fell 40% to its lowest since 2003, reports Jospeh Ciolli for Bloomberg.
“The euro certainly has some appeal, and we’re slightly long,” Adnan Akant, chief investment officer for foreign-exchange at Fischer Francis Trees & Watts Inc., said in the article. “U.S. investors are now pouring money into global assets, selling dollars.”
The euro traded to $1.368 Monday, rallying almost 7% from a five-month low of $1.2746 back in April.
The European bloc is experiencing higher exports. The Eurozone posted a 17.4 billion euro, or $23.8 billion, surplus for August, up from 15.5 billion in September. The positive current account is the difference between exports and imports – higher export demand translates to greater demand for the euro currency to purchase the European goods.
“We’ve seen very significant improvements in the current account, which is very encouraging,” Steve Barrow, the head of Group of 10 research at Standard Bank Plc, said in the article. “Looking at both trade and portfolio flows, you have to say the euro’s in a much stronger position.”
The Eurozone emerged from a record-long recession, expanding 0.3% in the second quarter.
The U.S. dollar still remains the global reserve currency, accounting for 62% of holdings as of the end of the second quarter. In comparison, the euro represented 24% of total holdings.
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Max Chen contributed to this article.