Two New Currency ETFs

Today Deutsche Bank and Amvescap unit PowerShares Capital Management LLC launched a pair of exchange-traded funds (ETFs) in the American Stock Exchange, which allow investors to make money from the movement of the U.S. dollar against a set of foreign currencies:
PowerShares DB U.S. Dollar Bullish Fund (UUP) &
PowerShares DB U.S. Dollar Bearish Fund (UDN) .

These new ETFs allow investors to play currency markets around the world without opening a futures account. These are designed to take long or short positions in the "Deutsche Bank U.S. Dollar Index Futures Index -- Excess Return," which follows the movement of the U.S. dollar against a basket of 6 major currencies: Euro, Japanese Yen, British pound, Canadian dollar, Swedish Krona and Swiss Franc. The "dollar bullish" ETF (UUP) will make money when the dollar rises against global currencies, while the "bearish" fund (UDN) will profit when the U.S. dollar falls.

The ETFs have expense ratios of 0.55%, but that will be offset by the yield from the fixed-income securities they hold as collateral for the futures contracts. Aside from the movement of the futures contracts, investors are expected to earn the yield on 3-month Treasury bills (current yield is about 5%). But, like all ETFs, they also have the disadvantage of the extra expenses of broker commissions for any transaction.

Last year, the company launched the PowerShares DB G10 Currency Harvest Fund (DBV) which is designed to take long futures positions in the 3 foreign currencies with the highest interest rates, and short the 3 currencies with the lowest yields (read our posting on DBV)

In December 2005, Rydex Investments introduced a family of 8 ETFs tracking the currency of single countries (See our past posting on Rydex ETF).