Sinking Dollar Presents Great Currency ETF Opportunities

As the U.S. dollar sinks to new lows against the currencies of other major U.S. trading partners, investors in international and currency ETFs can hear opportunity knocking.

The Federal Reserve's trade-weighted exchange index hit the lowest point since the index was created in 1973. This index weights the dollar's value against seven other major trading currencies, reports John Waggoner for USA Today. A weak dollar may not be fun for the American traveler abroad or the company that imports goods from other countries. However, a weaker dollar can give U.S. investors a boost from international profits. Exporters also benefit, as U.S. goods sold abroad are less expensive.

There are numerous international ETFs that investors can choose from to take advantage of the weak dollar. It is a matter of finding the right one to fit in their portfolio and with their investment goals. Investors also can use currency ETFs in their portfolio. Although they are relatively new, the lineup continues to grow. Here are just a few currency ETFs and ETNs:

PowerShares DB G10 Currency Harvest (DBV) - up 13.3% year-to-date

CurrencyShares British Pound Sterling (FXB) - up 7.5% year-to-date

CurrencyShares Euro (FXE) - up 6.4% year-to-date

CurrencyShares Canadian Dollar (FXC) - up 14.3% year-to-date

iPath GBP/USD Exchange Rate ETN (GBB) - up 3.8% for the month (launched in May)

iPath EUR/USD Exchange Rate ETN (ERO) - up 3.4% for the month (launched in May)

Read the disclosure, as Tom Lydon is a board member of Rydex Investments.

Comments

[phdinsuntan...:]

there is plenty of generals after the battle

2007 Jul 19 09:11 AM

[Jim Glazen:]

Congratulations. You likely just called the bottom in the dollar. By the time idiots like you embrace a long trend, it's due to reverse.

Enjoy!

2007 Jul 19 02:03 PM

[Will McClat...:]

As the above two comments suggest, you are describing the opportunity that occurred, not the one available to investors today. In investment parlance this is called chasing returns. It is not too dangerous for traders who watch their screens constantly and can bail out in time, which is likely since most dollar/other-major-cur... ratio fluctuations are not catastrophically swift.

It is, however, folly to suggest that long-term investors should invest in foreign assets BECAUSE the dollar has fallen for many years in a row. That is, while it is quite possible or even likely the dollar will go down a bit more, the more the dollar underperforms the more likely it is to return to historic performance. This is not the same as calling it to reverse, but it is a strong caution.

Since you do not mention what strategy or audience you are talking to, your comments are surely valid for some investors. But if they are meant for the trader, you do not provide the targets and time periods useful for the trader (where will the dollar bottom out and when?). For the typical passive long-term investor, overweighting international heavily now is frankly dangerous.

Will McClatchy
Editor
ETFzone.com

2007 Jul 20 06:43 PM

[Long-Short Guy:]

Looks like you were a bit early:
<blockquote>
<b>U.K. Pound Advances for Sixth Week on GDP Report, Rates Outlook </b>

he pound posted its longest winning run against the dollar in more than a year after a report showed U.K. economic growth unexpectedly quickened in the second quarter, fueling expectations of higher interest rates.

The U.K. currency rose to a 26-year high on speculation the Bank of England will raise rates half a percentage point from 5.75 percent by year-end while the Federal Reserve stays on hold. The pound also advanced as the Fed trimmed its forecasts for economic growth and Bear Stearns Cos. reported losses on hedge funds that bet on bonds backed by subprime loans.

``We've been positive on sterling for some time now, and remain so looking ahead,'' said Steven Barrow, chief currency strategist at Bear Stearns Intl. Ltd. in London. ``The rates story favors sterling as does the underlying strength of the U.K. economy.''...
</blockquote>

Source:
www.bloomberg.com/apps...;sid=aCQlLqq7NUt

2007 Jul 22 09:40 AM

[Sol Rosenberg:]

FX is the largest, most liquid market in the world. How can one realistically hope to generate alpha in that environment?

In the end all fiat currencies are going to zero, it's just a question of the relative rates of decline.

2007 Aug 02 11:17 PM

[quantumthink:]

Sol, I believe you are absolutely right. All fiat currencies are going to be worthless before long. Buy gold and silver insttead.
I had an incident recently that may or may not be related.
The Rydex Weakening Dollar Fund is a 2x1 leveraged, no load fund betting on a weaker dollar.

On Nov. 24, 2008 I bought shares of RYWBX at $20.44.
That day, the US Dollar Index was trading at around 85.
Currently, the US Dollar Index is trading around 82, or about 4% lower,
yet, RYWBX is trading at $17.44, also lower by about 15% from when I bought it.
I wanted to know why that is, so I called a rep. at Rydex.
He told me that it is due to "negative accrual."
That the USD had gone down, then it went back up.
He said the fund doesn't track well over a long period.
That it is more of a day to day fund......

Does this make any sense to you, or is this just another Wall St. scam?

Jan 12 03:43 PM