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Currency ETFs Look to Fed for Clues

tlydon@globaltrend.com (Tom Lydon)

Exchange traded funds pegged to the U.S. dollar and other currencies are taking their cues from central banks. In particular, dollar ETFs are sensitive to the prospect of further easing from the Federal Reserve.

PowerShares DB US Dollar Index Bullish (NYSEArca: UUP) is down slightly year to date. The ETF follows the movement of the greenback versus a basket of currencies.

Federal Reserve Chairman Ben Bernanke has expressed his doubts about the sustainability in the U.S. recovery, hinting at more stimulus measures. Consequently, foreign currency-related exchange traded funds have been appreciating as currency traders anticipate the future debasement in the U.S. dollar.

“While the labor market may lead to a self-sustaining recovery, we have not seen that in a persuasive way yet,” Bernanke said to the National Association for Business Economics, writes Gary Gordon for ETF Expert.

This suggests that Bernanke wants to provide additional accommodative measures that will essentially depreciate the U.S. dollar against foreign currencies.

As such, most currency-related ETFs have strengthened against the U.S. dollar over the past three months:

  • CurrencyShares Swedish Krona (NYSEArca: FXS) : up 4.2%
  • CurrencyShares Euro Trust (NYSEArca: FXE) : up 3.0%
  • WisdomTree Emerging Currency (NYSEArca: CEW) : up 6.3%
  • PowerShares DB Currency Harvest Fund (NYSEArca: DBV) : up 5.3%
  • CurrencyShares Australian Dollar (NYSEArca: FXA) : up 2.1%
  • WisdomTree Indian Rupee (NYSEArca: ICN) : up 6.6%
  • WisdomTree Brazilian Real (NYSEArca: BZF) : up 4.2%

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

Read the disclaimer; Tom Lydon is a board member of the funds for Guggenheim Investments.

Max Chen contributed to this article.