Currency ETFs for a Stronger U.S. Dollar

ETF Trends

As the U.S. market continues to grow and the Federal Reserve tightens its monetary policy to stave off an overheating economy, the U.S. dollar, along with related exchange traded funds, will appreciate against foreign currencies.

“USD strength is anticipated in 2013 as expectations for ending QE are moved up while the U.S. outperforms most of the G10 world,” Daniel Brehon, V.P. of FX Strategy for Deutsche Bank, said in a recent ETF Trends webcast.

Brehon pointed out that the shale oil boom and higher household savings rates will lead to an improved long-term current account scenario, rising home prices helps support consumers and banks, U.S. household balance sheets are strengthening, banks are lending again and fiscal headwinds are easing with the sequestration drama behind us.

Traders interested in riding a strengthening U.S. dollar can take a look at the largest U.S.-dollar ETF in the space, the PowerShares DB U.S. Dollar Index Bullish Fund (UUP) , which tracks a basket of euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc currencies. [Fed Action Helps Strengthen U.S. Dollar ETF]

Investors can now choose an actively managed option with the more recently launched WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) , which tries to track the USD against the euro, yen, Canadian dollar, pound sterling, Mexican peso, Australian dollar, franc, South Korean won, Chinese yuan and Brazilian real.

Additionally, for the more aggressive traders, the PowerShares DB 3x Long US Dollar Index Futures ETN (UUPT) provides a leveraged 300% bullish monthly return to the U.S. dollar futures index.

Brehon also argued that currency traders could see further weakness in the euro currency as growth risks linger, which could push the European Central Bank to increase easing.

The Eurozone experienced its largest monthly drop in inflation over January, with consumer prices dipping by 1.1% month-over-month, Reuters reports. Annual inflation rate was at 0.8% for a second month in a row, a level well below the ECB’s target of 2%. With inflation still low, the ECB has more room to maintain loose monetary policies.

To hedge against a weakening euro currency, ETF investors can take a look at the leveraged Market Vectors Double Short Euro ETN (DRR) or a simple inverse euro ETF, ProShares Short Euro ETF (EUFX) . [Central Banks Could Affect Overvalued Euro]

For more information on world currencies, visit our currency ETFs category.

 

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