Strong Pound, Euro Buoy ETFs

A strong pound and euro this week have helped European exchange-traded funds continue their robust performance and both currencies are likely to get stronger with more interest rates hikes expected this summer.

The Financial Times reported that the European Central Bank is firmly expected to raise its main rate by a quarter point to 4 per cent in June. The euro hit a succession of two-year highs against the dollar this week. And the minutes from the Bank of England's monetary policy committee meeting earlier in the month suggested that an interest rate increase to 5.5 per cent in May was all but a done deal.

Against the backdrop of steady economic activity in Europe is the anticipation that the next move by the Fed will be to lower interest rates. This will widen the gap and likely sent the euro and pound higher. Remember that country-specific ETFs are not hedged against the dollar. The UK exchange-traded fund is (EWU) and a good proxy for the overall European markets is the iShares S&P Europe 350 (IEV).

By Carl Delfeld of the Chartwell ETF Advisor