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Currency Hedged Euro Zone ETFs to Buy After ECB Meet

Sanghamitra Saha
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The European Central Bank’s (ECB) latest meeting held on Apr 26, 2018 hinted at moderation in economic growth and the need to keep the policy rate constant. The ECB reaffirmed its intention to go slow about the possibilities of withdrawing the Euro-area stimulus.

After the ECB president Mario Draghi’s comments, Euro ETF PowerShares CurrencyShares Euro Trust FXE lost about 0.6% on Apr 26. This is especially true given the recent dollar rally on rising rate concerns in the United States. The dollar fund PowerShares DB US Dollar Index Bullish Fund UUP added about 0.5% on Apr 26 (read: 5 ETFs to Profit From a Dollar Rebound).

The bank maintained that net asset purchases are likely to run at a monthly pace of €30 billion until the end of September, or beyond, should the need be. The benchmark refinancing rate in the Euro zone was kept same at 0%, while the deposit facility rate and marginal lending facility rate remained at -0.4% and 0.25%, respectively.

Inside ECB and Analysts’ View

The recent volley of weaker-than-expected economic data probably caused the ECB to maintain a cautious stance. Draghi attributed a moderate uptick in inflation in February to food price inflation, per an article published on Financial Times.

Even after considering the latest increase in oil prices, inflation is likely to remain below the ECB’s goal for the remainder of 2018 and there is a need for “ample degree of monetary accommodation.” The bank’s governing council also stressed that it would keep interest rates at record lows “well past” the conclusion of the quantitative easing program.

An economist at ING-DiBa bank expects the ECB to extend the QE program through the first quarter of 2019. “Inflation will not pick up and growth could well be weaker than [what] many expect in the first quarter. The ECB will not change its forecast just yet, but the uncertainty about the outlook looks set to become more of a factor over 2018,” per the ING-DiBa economist.

Whatever the case, the ECB is confident about the long-term outlook of the region. So, the continuation of the QE policy and a weaker Euro should boost the currency-hedged Euro zone ETFs in the near term (see all European Equity ETFs here).

Currency-Hedged ETFs Winning Proposition

iShares Currency Hedged MSCI Eurozone HEZU

Though the non-currency hedged version of the Eurozone ETF iShares MSCI Eurozone EZU gained about 0.3%, its currency hedged version gained about 0.9% on Apr 26, 2018. So, HEZU a good pick right now.

iShares Currency Hedged MSCI Germany ETF HEWG

The fund looks to track the MSCI Germany 100% Hedged to USD Index. The non-hedged version of the Germany fund iShares MSCI Germany ETF EWG added about 0.4% on Apr 26, 2018. HEWG is up about 0.9% after the EB meet (read: What Lies Ahead for German ETFs?).

Xtrackers MSCI Eurozone Hedged Equity ETF DBEZ

The underlying MSCI EMU IMI U.S. Dollar Hedged Index provides exposure to Eurozone equity markets, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and euro. France, Germany and the Netherlands are the top geographic holdings of the fund. The fund gained 0.9% on Apr 26.

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CRYSHS-EURO TR (FXE): ETF Research Reports
 
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DEUTS-XT MS EMU (DBEZ): ETF Research Reports
 
ISHARS-GERMANY (EWG): ETF Research Reports
 
ISHA-CH MS GERM (HEWG): ETF Research Reports
 
ISHARS-CH MS EM (HEZU): ETF Research Reports
 
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