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Currency ETF Winners & Losers Amid Inflationary Waves

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The global economy is saddled with inflationary threats. Inflation in the United States has been hitting a 40-year high level. Euro zone inflation came in at 8.1% in May, according to preliminary figures, up from April's record high of 7.4% and above expectations of 7.8%. The annual inflation rate in the United Kingdom increased to 9.1% in May of 2021 from 9% in the previous month, marking the highest since 1982 and in line with market expectations.

China's annual inflation rate jumped to 2.5% in June 2022 from 2.1% in the prior month and above market forecasts of 2.4%. This marked the highest print since July 2020. The annual inflation rate in Japan was at 2.5% in May 2022, unchanged from April's 7-1/2-year high figure and in line with market consensus.

No wonder, most central banks have been hiking rates to contain inflation. In the policy tightening spree, the U.S. dollar emerged winner. This is because the Fed has hiked rates by 150 bps so far this year and may enact more rate hikes in the coming days. As a result, the greenback has gained strength this year.

Meanwhile, the ECB has kept rates constant so far, though indicated that the bank might raise rates in the coming days.  The Bank of Japan left its key short-term interest rate unchanged at -0.1% and that for 10-year bond yields around 0% during its June meeting, by an 8-1 vote, as widely expected.

Against this backdrop, below we highlight a few currency ETFs that won/lost the most (as of Jul 8, 2022).

Winners

Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) – Up 11.6% YTD

The underlying Deutsche Bank Long USD Currency Portfolio Index - Excess Return is a rules-based index composed solely of long U.S. Dollar Index futures contracts that trade on the ICE futures exchange. The fund charges 78 bps in fees (read: Tap Dollar Strength With These ETFs).

WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU - Free Report) – Up 9.1%

This ETF is active and does not track a benchmark. The WisdomTree Bloomberg U.S. Dollar Bullish ETF seeks to provide total returns, before expenses, that exceed the performance of the Bloomberg Dollar Spot Index. The fund charges 50 bps in fees.

Invesco DB G10 Currency Harvest Fund (DBV - Free Report) – Up 5.6%

The underlying Deutsche Bank G10 Currency Future Harvest Index - Excess Return comprises of currency futures contracts on certain G10 currencies and is designed to exploit the trend that currencies associated with relatively high interest rates tend to rise in value relative to currencies associated with relatively low interest rates. The fund charges 78 bps in fees.

Losers

Invesco Currencyshares Japanese Yen Trust (FXY - Free Report) – Down 15.6%

The Japanese Yen is the national currency of Japan and the currency of the accounts of the Bank of Japan, the Japanese central bank. The fund charges 40 bps in fees.

Invesco CurrencyShares British Pound Sterling Trust (FXB - Free Report) – Down 11.2%

The British pound sterling is the official currency of the United Kingdom and has been the currency of the accounts of the Bank of England since 1694. The fund charges 40 bps in fees.

Invesco CurrencyShares Euro Trust (FXE - Free Report) – Down 11.1%

The Invesco CurrencyShares Euro Trust is designed to track the price of the Euro. The Euro is the currency of 19 European Union countries. The fund charges 40 bps in fees.