Many currency experts are expecting the U.S. dollar to rally in 2010 and gain back some of the ground that it lost in 2009 and for good reason.
One reason for the expected rally is due to the Federal Reserve’s decision to hold interest rates steady, states Alexandra Zendrian of Forbes. Traditionally, when interest rates are low, currencies perform poorly, but in this case, keeping interest rates low may be a good thing for the dollar when compared to the Euro and the British Pound.
The Euro and Pound, both which gained enormous ground against the dollar, are both facing uphill battles as fiscal problems in some of the Eurozone nations like Spain and Greece are expected to put a damper on the strength of the region’s economic recovery. Additionally, signs of economic strength in the U.S. appear to be more evident than in Europe.
A second reason that the dollar is expected to gain some appeal is the desire of foreign investors to utilize the currency as a safe haven. Although many international regions are expected to post GDP growth in 2010, these regions are still somewhat unstable and many investors are likely to turn to the dollar for protection.
From an investor’s perspective, ways to play this anticipated trend in the dollar include the following:
- PowerShares DB US Dollar Index Bullish (UUP), which uses futures contracts to go long in the dollar against a basket of currencies including the Euro and the Pound and carries an expense ratio of 0.50%.
- ProShares UltraShort Euro (EUO), which enables investors to gain twice the inverse performance of the Euro against the dollar and carries an expense ratio of 0.95%.
- CurrencyShares British Pound Sterling Trust (FXB), which seeks to track the price of British Pound Sterling and carries an expense ratio of 0.40%. An investor can short this ETF to bet against it.