IMF for further dollar depreciation

Reuters ^ | 26 March 2007 | Reuters

[Dacb]

The International Monetary Fund will say further depreciation by the US dollar is needed to help correct global imbalances in its latest World Economic Outlook (WEO), Germany's Sueddeutsche Zeitung said on Saturday.

Quoting from a draft of the WEO, the paper said the Washington-based fund argued "extraordinarily aggressively" for a correction in exchange rates, above all so as to reduce the massive US current account deficit.

The dollar, which slid to a 2-year low against the euro last week, should continue to depreciate in the mid-term, while the yen, the Chinese yuan and currencies of oil-exporting countries in the Middle East should all appreciate, the draft WEO said.

The WEO, which is due to be published in mid-April, will add that there is no great need for further interest rate increases by the European Central Bank, according to the paper.

Thanks to solid growth in the 13-nation euro zone, the ECB would not create problems by raising its main lending rate to about 4.0 percent from 3.75 percent at present, the IMF said.

[oblomov]

Time to keep your cash in currency ETFs FXA, FXF and FXJ, instead of a USD-denominated MM fund.

[LM_Guy]

how do you do that, buy currency funds or European mutual funds?

[oblomov]

The currency ETFs trade on the NYSE- you can buy them in any brokerage account. They pay interest that is 25 basis points (0.25%) under the short-term treasury rate for the currency. For example, FXA pays a 5.75% distribution, FXF pays 2.25%, and so on.

Buying currencies this way is much cheaper than using a foreign currency account at a US bank.

Here is an article on these ETFs:

http://www.thestreet.com/etf/etf/10291784.html

As far as European mutual funds are concerned- I think it’s better to buy the stocks themselves (again, through your broker), since mutual funds in Europe have high fees compared with the US.