CurrencyShares British Pound Sterling (FXB | B-99)
Merk previously noted that investors were caught off guard when Bank of England Governor Mark Carney wasn't as dovish as expected. Positive economic data has sidelined Carney, and with the U.K. economy humming along, Merk currently favors the pound sterling as one of the currencies most likely to appreciate relative to the U.S. dollar. FXB is a stable, liquid ETF providing exposure to the GBP/USD currency cross that Merk expects to appreciate. The fund's $75 million in assets is modest, but it trades more than $1 million most days at 2 basis point spreads. FXB is structured as a grantor trust, and all gains from the sale of shares are taxed as ordinary income.
CurrencyShares Australian Dollar (FXA | A-99)
Merk singled out the Australian dollar as one of his top currency picks for the remainder of the year. He believes the Chinese economy will surprise on the upside, benefiting the Aussie dollar because commodity-hungry China is Australia's largest trading partner. FXA shares are physically backed by Aussie dollars, so it's an excellent way to gain "pure" exposure to the AUD/USD cross. The Aussie dollar is one of the few developed-market currencies with a meaningful yield, so FXA shareholders enjoy roughly a 2 percent yield (2.5 percent local interest rate minus 0.40 percent expense ratio). The $295 million fund trades with robust liquidity—$4.2 million a day at 3 basis point spreads—keeping trading costs low. Structured as a grantor trust, all gains and distributions are taxed as ordinary income.