2 Currency ETFs for Euro Bulls After the Fed’s Sharp Rate Hike
The year was particularly strong for the , the basket of six other currencies belonging mainly to the most important trading partners of the United States. The index is used as a measure of the value of the greenback which has accelerated so far in 2022.
Index currencies include , , , , and . The index rises when the US dollar strengthens against these other currencies, particularly against the euro which has the highest weighting in the index.
The US Federal Reserve hiked 75 basis points on Wednesday, the most aggressive hike since 1994. The Fed also lowered its expectations for US GDP growth for 2022 to 1.7% from 2.8% in March. .
Therefore, we are likely to see further instabilities in the currency and equity markets in the days ahead.
At the start of the year, the dollar index was just below 96. Now, due to the hawkish US central bank, it is hovering just above 104.50, up well over 9%.
Likewise, the Invesco DB US Dollar Index Bull Fund (NYSE:), which offers exposure to US dollar index futures, is also up 9% year-to-date.
Meanwhile, the European Central Bank held an ad hoc emergency meeting yesterday. Reuters:
“The meeting was called after the premiums demanded by investors to hold bonds from Italy, Spain and Portugal over safer German debt – spreads in market parlance – hit an all-time high. level since 2020.”
On the agenda of the Governing Council responsible for setting rates: potential measures to preserve the financial health of the euro zone. Last week the ECB also reported a hawkish stance for the rest of the year.
Therefore, in the coming days, we could see rapid movements in the euro, which has already come under pressure this year due to the region’s vulnerability to the Russian-Ukrainian conflict.
Many analysts remain skeptical on the long-term outlook for the single currency due to the risks associated with the uneven economic recovery in the eurozone from the pandemic. However, others might be willing to bet on bullish moves in the Euro.
During these periods of volatility, an exchange-traded fund (ETF) can be a good tool for investors. Today we are introducing two funds for the Euro bulls.
1. Invesco CurrencyShares Euro Trust
- Current price: $96.71
- 52 week range: $95.92 – $113.41
- Spending rate: 0.40% per year
The Invesco CurrencyShares Euro Currency Trust (NYSE:) is suitable for those who want to go long the Euro against the US Dollar. The fund’s movements mimic the value of the euro against the greenback.
FXE began trading in December 2005 and has over $250 million under management.
So far in the year, FXE has lost nearly 95% of its value. It is also down about 15% over the past 12 months.
The ETF hit a 52-week high on June 15, 2021, exactly one year ago. However, uncertainty regarding the war in Ukraine, gas imports from Russia, Fed decisions and the EU’s widening trade deficit undermined the value of the Euro. As a result, the fund hit a multi-year low on May 12.
We are long-term bullish on the US dollar. However, that might take a short-term break. Therefore, investors can use FXE to benefit from short-term tactical opportunities in the Euro.
2. ProShares Ultra Euro
- Current price: $11.10
- 52 week range: $10.90 – $15.40
- Spending rate: 0.95% per year
Next, we have a leveraged fund that could be of interest to investors looking to profit from the strengthening Euro against the US Dollar.
The ProShares Ultra Euro Funds (NYSE:) provides twice the daily performance of the Euro against the US Dollar. As a 2x leveraged fund, ULE invests in derivative instruments, such as forward contracts, swap agreements, and futures and options contracts. Therefore, losses and gains are magnified.
ULE was first listed in November 2008 and manages approximately $6.3 million. In June of last year, ULE was trading in territory over $15. It’s now at $11, down more than 28% over the past year.
Like other leveraged funds, ULE should only be used by experienced short-term traders wishing to participate in currency movements on a daily basis.