Image by: Images_of_Money
By Steven Morrison II
There is a currency war going on out there, with battles raging on multiple fronts. In Europe, the EU’s euro suffers as it has fallen to lows not seen in years, as the bail-outs and uneasy feelings continue. China’s changing of the communist guard has speculators worried that Big Red’s growth will slow significantly, at least for the short term. Even mild-mannered Canada has seen its share of headlines, as their paper has suddenly bounced back after several months of battering.
Amidst all of this chaos, the dollar has done well as of late, enjoying several weeks straight of upward mobility. But despite these fantastic figures, a dramatic political-economic event looms large over the landscape: the fiscal cliff. That automatically triggered program – which features drastic tax increases and spending cuts designed to cut a big chunk out of the ever-growing deficit – is set to take place at the beginning of 2013.
The politicians are posturing. Wall Street is uncertain. The world watches. Economists fear the worst if that trigger happens.
While falling off the fiscal cliff could spell bad news for the U.S. economy, the unfortunate situation also opens up an opportunity for you, the astute investor, to bet against the dollar and reap the rewards. One of those on your shopping list should be the Japanese yen.
“… The fiscal cliff could haunt the dollar, if investors start betting the Federal Reserve will take easing steps to counter the effect of the fiscal cliff,” says The Economic Times. “In such case, the dollar’s weakness may become notable particularly against the yen, which often tends to outperform when risk appetite wanes because of Japan’s net creditor status.”
But not yet – there is a bit of political turmoil in Japan going on right now. But there is a growing feeling by currency experts that near or after Japan’s just-announced general elections take place on Dec. 16, the yen will come bouncing back and beat up the dollar for the remainder of the year.
Again, that’s 2012 stuff. When it comes to long-term bets, the dollar is predicted to fall.
“Yet while the dollar has held firm in 2012, many investors remain long term bears on the world’s reserve currency due to America’s many economic issues,” warns Eric Dutram of Zacks investment research.
To capitalize on this forecast, the experts say exchange-traded funds (ETF) are the way to go due to their reasoned and well spread-out bets against the dollar. ETFs of particular note, according to Dutram, are the PowerShares DB G10 Currency Harvest Fund and the WisdomTree Dreyfus Emerging Currency Fund.