- Currency traders are not afraid of being long in the common currency
- CurrencyShares Euro Currency Trust (NYSEArca: FXE) is being impacted by European Central Bank is actively seeking ways to weaken the euro
- FXE had a weekly gain of 1.5% after Federal Reserve opted against boosting U.S. interest rates
Although the European Central Bank (ECB) is actively seeking ways to weaken the euro, something that did not have much impact on the CurrencyShares Euro Currency Trust (NYSEArca: FXE) last week, some currency traders are not afraid of being long in the common currency.
Coming into this year, some market observers predicted the euro would not weaken against the U.S. dollar as much as was seen in the previous two years. The U.S. dollar has previously been strengthening on the prospect of a tighter monetary policy, which would help remove some of the excess liquidity sloshing around in the economy.
Last week, there was a delayed reaction to the ECB’s latest euro weakening efforts. Making matters worse for euro bears, the Federal Reserve opted against boosting U.S. interest rates, helping FXE to a weekly gain of 1.5%. The ECB disappointed markets in December by announcing smaller-than-expected additions to its QE program, prompting speculation that the central bank could make a more dramatic announcement sometime this year.
“Bullish sentiment for the euro against the dollar moves to a five-week high even after comments by the European Central Bank’s Executive Board member and chief economist Peter Praet that the deposit rate hasn’t reached the lower bound yet sent the currency lower. One-month volatility skew steepens to the highest level since Feb. 10,” reports Vassilis Karamanis for Bloomberg.
The yield disparity between European stocks and bonds has been widening as recent global uncertainty pushed investors out of the equities market and into safe-haven fixed-income assets.
ECB President Mario Draghi has previously signaled that the ECB could expand its quantitative-easing program to bolster growth and bring inflation back up, stating that the return of inflation to target is more important than the impact of ultra-low rates.
The ECB said it would lower deposit rates to minus 0.4% from minus 0.3% and reduced its main refinancing rate to zero from 0.05%. Moreover, the central bank said it would include investment-grade corporate bonds in its bond-buying program, along with increasing the overall pace of the quantitative easing to €80 billion, or $88.6 billion, a month from €60 billion.
CurrencyShares Euro Currency Trust
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.