Concern over a slowdown in China, the second largest economy in the world, and volatility in the emerging markets due to quickly devaluing currencies has prompted higher demand for safe-haven currency exchange traded funds plays.
The CurrencyShares Japanese Yen Trust (NYSEArca: FXY) increased 0.8% Friday and CurrencyShares Swiss Franc Trust (NYSEArca: FXF) gained 0.3%. Year-to-date, FXY is up 2.1% while FXF is down 0.7%.
Meanwhile, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks a basket of euro, yen, pound, Canadian dollar, krona and franc currencies, was slightly up 0.1% Friday. The actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU), which tracks the euro, yen, Canadian dollar, pound sterling, Mexican peso, Australian dollar, franc, South Korean won, Chinese yuan and Brazilian real, was down 0.2%. Foreign investors typically turn to U.S. government bonds as a safe-haven play during volatile times, increasing demand for U.S. dollars.
The Japanese yen touched a seven-week high against the U.S. dollar while the Swiss franc hit a five-week high against the euro, reports Gertrude Chavez-Dreyfuss for Reuters. [‘Hard’ Currency ETFs Attract Safe-Haven Plays]
The dollar fell to a one-and-a-half month low of 102.06 yen while the euro was down to 1.2227 francs. The USD also weakened against the franc, trading around 0.8946 francs.
Volatility spiked following a survey released Thursday that showed China’s manufacturing started off 2014 weaker than expected. The quickly depreciating Turkish lira, South African rand and Argentine peso exacerbated the selloff in the emerging markets and riskier assets. [Tapering Bets Send EM Currencies Reeling]
The risk-off sentiment is also partly fueled by speculation that the Fed will continue to taper its monthly bond purchasing program at next week’s policy meeting, which will further bolster the U.S. dollar.
“Global investors remain firmly risk-averse – the selloff in emerging markets this week, triggered in part by the steep decline in the Argentinian peso – has fuelled renewed concerns about the eventual withdrawal of liquidity as the Federal Reserve tapers its quantitative easing program,” Samarjit Shankar, director of market strategy at BNY Mellon, said in the article.
CurrencyShares Japanese Yen Trust
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Max Chen contributed to this article.