‘Hard’ Currency ETFs Attract Safe-Haven Plays

ETF Trends

After rising speculation on Fed “tapering” and the tumult in the U.S. equities markets, global investors flocked back to traditional safe-haven plays, boosting hard currency exchange traded funds.

For instance, the CurrencyShares British Pound Sterling Trust (FXB) was up 2.4% over the past week, CurrencyShares Euro Trust (FXE) was 1.6% higher , CurrencyShares Japanese Yen Trust (FXY) rose 3.8% and CurrencyShares Swiss Franc Trust (FXF) gained 2.5%. [Japan ETFs Back in Focus After Abe Speech]

The Guggenheim CurrencyShares line of currency ETFs gains exposure to currency movements by maintaining a deposit account denominated in each of their corresponding countries.

Meanwhile, the PowerShares DB U.S. Dollar Index Bullish Fund (UUP) , which tracks a basket of euro, yen, pound, Canadian dollar, krona and franc currencies, was down 1.9% over the last week.

Safe-haven currencies, or hard currencies, are seen as a reliable and stable source of value. The currencies are associated with issuing country’s long-term stability and purchasing power. Traditionally, the U.S. dollar, British pound sterling, Japanese yen and Swiss franc are considered hard currencies.

On the other hand, soft currencies include those that have shown considerable volatility, such as the currencies of the emerging markets where fiscal and political instability would instigate fluctuations.

On Friday, the U.S. dollar Index was about 0.2% higher after the Labor Department revealed healthy job creation in May, reports John Detrixhe for Bloomberg. [Dollar ETF in Focus as Williams Says Fed May Taper This Summer]

“The initial reaction was a stronger dollar, and I think that means the market saw this as a bit stronger than they had been expecting,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities, said in the article. “The number is not strong enough to guarantee that tapering is coming sooner, and it’s not weak enough to push tapering expectations even further out.”

“Expectations of tapering is a positive for the U.S. dollar as it means a slowing in the expansion of the Fed’s balance sheet,” Eric Viloria, a senior currency strategist at Gain Capital Group LLC, said in the article.

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

Max Chen contributed to this article.

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.

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