Guide To Currency Hedging ETFs

Rounds of speculation over the Fed lift-off resumed in full volume to start November as the central bank brought back the December rate hike possibility on the table in its October-end meeting. Not only this, in early November, the Fed chair indicated that the U.S. economy is ‘performing well’ and a slower rate hike trajectory would be justified in the December meeting if the economy maintains the momentum.

While this single statement was enough to fuel the greenback against a basket of foreign currencies, a barrage of policy easing across the globe, be it developed or emerging, made the U.S. dollar even stronger. In fact, persistently weak oil prices put a break on global inflation which in turn called for more easing.

To add to this, strong U.S. October job report, wherein nonfarm payrolls increase marked the highest advance in 10 months and the unemployment dropped to the lowest level in seven and a half years, buoyed up the December rate hike possibility further. All these took the dollar index to a seven-month high on November 9.

Global Policy Easing on Full Swing 
 
Most importantly, the European Central Bank (ECB) president Mario Draghi recently reassured of a more intensified and protracted QE measure (if needed). He reaffirmed the evaluation of the monetary policy by the end of this year based on a volley of economic data. As of now, €1.14 trillion ($1.16 trillion) worth of QE measure is in place in the Euro zone, which is to be pursued till September 2016.
 
With an exasperating weakness in Euro zone’s near-term growth prospects and deflationary woes peeking in, investors can reasonably expect a beefed-up policy measure pretty soon. Sensing the possibility, CurrencyShares Euro ETF (FXE) lost about 5.4% in the last one month (as of November 9, 2015).
 
Next comes Bank of Japan (BoJ), which is walking along the same lines. Having failed to perk up the ailing economy, BoJ is also speculated to enhance its fiscal stimulus, going by the source. Notably, in October 2014, the bank raised its asset buying program to 80 trillion yen a year from the initial rate of 60–70 trillion yen. CurrencyShares Japanese Yen ETF (FXY) was also down about 2.6% in the last one month.
 
Other developed economies are also taking the same stance. In fact, Bank of England cut the UK growth forecast for this year and the next and simultaneously cast out the possibility of a rate hike soon. UK’s inflation now hovers around the near-zero level.
 
China, the second-largest economy in the world, slashed its key interest rates six times since last November, devalued the currency by 2% and rolled out plenty of petite easing measures to boost domestic consumption this year. Chinese currency Renminbi lost about 3.3% against the greenback so far this year.
 
Apart from these global superpowers, several other countries like Turkey, India and South Korea are opting for policy easing. Even Russia is also mulling over a rate cut once the high inflation rate cools off.