Down 4.6% year-to-date, the CurrencyShares Euro Currency Trust (NYSEArca: FXE) is one of 2016’s worst-performing currency exchange traded funds. Euro bulls should be careful if they are betting on better things for the common currency in 2017.
The European Central Bank (ECB) has been an issue for investors this year, but the ECB recently noted it will not taper its quantitative easing program, at least not in the near-term. Market observers argued that the ECB could even extend its bond purchasing program to further support inflation. The ECB has already spent over a trillion euros buying government bonds, cut its benchmark rate to zero and adopted a negative deposit rate.
Moreover, the U.S. dollar has morphed laggard to leader among developed market currencies, an ascent aided by the Federal Reserve boosting interest rates earlier this month. The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) is now one of this year’s top currency ETFs and more of the same is expected next year as the Fed could boost borrowing costs three or four times.
UUP tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.