With the dollar and the related exchange traded funds flailing this year, investors considering currency ETFs may want to have a look at the CurrencyShares Euro Currency Trust (NYSEArca: FXE). FXE, which tracks the euro’s price movements against the dollar, is up nearly 6% year-to-date.
The Eurozone macroeconomic environment has steadily improved, with a significant uptick in manufacturing and services PMIs over the end of 2016. Eurozone growth may continue to pick up speed ahead after the European Central Bank revealed increased loan demand and easing of terms and conditions on new loans to help stimulate the economy.
Traders perception that Eurozone political risk is decreasing following France’s presidential election is helping boost the common currency. Centrist and pro-EU Emmanuel Macron won France’s election, the desired result for financial markets and the euro. Euro traders have hopped on the theme of nascent French dynamism spurred by Macron’s tax cuts and government streamlining, but this is all based on the new French president’s proposals passing parliament’s Coalition of the Unwilling.
“Now that the political risk of the French election is out of the way, and the European economy is improving, the euro has been on a trajectory higher. The gusher of funds into European stocks is also driving buying in the euro, at the same time the dollar is weakening on a recent batch of disappointing U.S. economic data,” according to CNBC.
Still, the euro is not out of the political volatility woods just yet. Later this year, Germany and Italy, the Eurozone’s largest and third-largest economies, hold national elections.
Political uncertainty continues to linger in Italy as well. Former Prime Minister Matteo Renzi resigned in December following a no-confidence referendum. At the time, some market observers believed Renzi’s resignation could lead to early elections and a rise in support for the populist anti-euro Five Star Movement. The party would seek to carry out a referendum on Italy breaking away from the Euro area.
Thanos Vamvakidis, head of global G-10 foreign-exchange strategy at Bank of America Merrill Lynch “said his outlook for the euro is mixed because the U.S. Federal Reserve is expected to raise interest rates, which would drive the dollar higher. But the U.S., along with the U.K., has had the most negative economic surprises of any economy, while Europe has had the most positive economic surprises,” reports CNBC.
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