More currency ETFs hit the market

A trio of new products are extending the currency market’s reach beyond the spot forex and futures arenas.

In late February, PowerShares introduced two new exchange-traded funds (ETFs) designed to track the movement of the U.S. dollar vs. a group of global currencies. The U.S. Dollar Bullish Fund (UUP) and the U.S. Dollar Bearish Fund (UDN) profit from rises and drops in the greenback, respectively.

The index tracked by the ETFs measures the dollar vs. the euro (which accounts for 57.6 percent of the value of the fund), the Japanese yen (13.6 percent), the British pound (11.9 percent), the Canadian dollar (9.1 percent), the Swedish krona (4.2 percent), and the Swiss franc (3.6 percent).

The ETFs allow traders to trade foreign currencies without setting up a separate futures account. Foreign currency mutual funds have been around for years, but ETFs generally have lower fees and are easier to get in and out of.

“Investors are getting more data on the U.S. dollar, what’s driving it, and its impact on their investment portfolios, but there haven't been a lot of tools to invest in the dollar’s moves,” says Kevin Rich, chief executive of DB Commodity Services, the firm that manages the ETF.

Volume for the two ETFs for the first week of trading has been much better for UDN, as its average daily volume was more than 31,000 as opposed to 8,000 for UUP.

Another currency ETF that began trading in February is the Rydex CurrencyShares Japanese Yen Trust (FXY). While the PowerShares ETFs invest in futures contracts to replicate the movement of the dollar, the yen trust actually invests in the currency.

The FXY has been popular with traders, as it averaged just more than 300,000 contracts per day in February.

The FXY adds to Rydex’s suite of currency ETFs, which already include the euro trust (FXE), the British pound sterling trust (FXB), the Canadian dollar trust (FXC), the Australian dollar trust (FXA), the Swiss franc trust (FXF), the Swedish.
krona trust (FXS), and the Mexican peso trust (FXM).