As the American economy continues to grow at a painfully slow pace, investors have begun to lose confidence in the once rock-solid greenback. This has pushed many investors into the relative safety of gold and other precious metals, many of which are now breaking through or approaching all-time highs. Even the much maligned euro -- despite a patch of weakness earlier this week -- has seen a spike in its value as of late, surging by close to 10% over the past three months. Given the ongoing troubles in the American market and the fact that even the euro has been gaining against the dollar, it should not come as a surprise to many to find out that the dollar has also been struggling against a variety of more fundamentally sound currencies as well.

While some smaller countries, such as Switzerland and South Korea, have been intervening in the currency markets throughout the year, a number of larger markets have resorted to selling their home currency on the open market and using the proceeds to buy dollars as well. While this process has a questionable long-term impact, few can argue that in the short-term, this technique can produce the desired effect. However, collateral damage is often felt throughout the home economy as well as in the American markets. With a significantly weaker currency, emerging markets have greater difficult buying up commodities and other global products which are generally traded in U.S. dollars. Meanwhile, in the U.S., a strong dollar could possibly prevent businesses from moving their operations here because of high costs, which end up simultaneously pricing out American exports to international markets [also read Top Performing Currency ETFs From The First Half Of The Year].

In normal market conditions, this may fly under the radar of most since the practices help to keep commodity prices low and imports cheap and plentiful. But with an election coming up and near double-digit unemployment, these practices have been put under the microscope by a host of U.S. politicians who are taking a tough stance on the issue in an attempt to win votes and secure American manufacturing jobs. While there has been talk of "getting tough" on China regarding its currency policies for years, Congress finally backed up its words with actions. In a rare bipartisan show of support, the House voted 348 to 79 to allow tariffs to be imposed on countries that chronically undervalue their currencies.

Although the Senate is not expected to vote on the bill for some time, some are calling this a good first step on the road to helping the U.S. to cut into its massive trade deficit with China. Others are not so optimistic, fearing that it will merely ignite a larger trade dispute as nations seek to win "a race to the bottom" in which their exports are the cheapest on the international market thanks to increasingly large currency devaluation programs. "Today we have another threat which is that this willingness for consensus and cooperation has decreased. And we see around the world a possibility of the beginning of a currency war," said Dominique Strauss-Kahn, the head of the IMF in the fall meeting of the organization [see Which Chinese Yuan ETF Is Best To Play Currency Revision?].

While many have engaged in these tactics over the past quarter, three nations stand out for their "questionable" currency practices because of the immense size of their economies and their importance in world trade. Below, we profile three currency ETFs investors need to watch if this global currency war continues as we approach the end of the year:

WisdomTree Dreyfus Chinese Yuan Fund (NYSE: CYB)
Since China has its currency pegged to the dollar, it has not had to sell its renminbi in order to keep its exports competitive on the world market. In fact, many argue that the yuan is severely undervalued against the dollar -- some say by as much as 35% -- and that the currency is long overdue for a revaluation against the greenback. While the recent bill that came out of the House attempts to rectify this imbalance by targeting China and its currency practices, the People's Republic is not exactly thrilled with the passage of the legislation, saying that the issue violates WTO rules and that it could "severely damage" relations between the two largest economies in the world. While most do not expect this move to get the Chinese to freely float their currency, it could lead to a small revaluation of the Chinese currency in the near future.

The most popular way to play an upward revaluation in the Chinese yuan is with WisdomTree's CYB. The fund seeks to achieve total returns reflective of both money market rates in China available to foreign investors and changes in value of the Chinese yuan relative to the U.S. dollar. The actively-managed fund currently has over half a billion dollars in assets with close to 250,000 shares trading hands every day. Due to the stable nature of the currency against the greenback, the fund has gained just 0.2% against the dollar over the past 52 weeks, far less than virtually all of the other emerging country currencies. However, the fund does pay out a reasonable dividend and has a correlation with the S&P 500 of just 0.04, suggesting that it moves independently of U.S. stocks [also read Warning: Buy China Yuan ETFs At Your Own Risk].

Rydex CurrencyShares Japanese Yen Trust (NYSE: FXY)
Quite possibly the most famous example of currency devaluation, at least in this latest round, has been Japan. The Japanese have been selling the yen at a ferocious pace in an attempt to prevent the currency from rising above the 80 yen to a dollar mark. Japan maintains an export-driven economy, so any sharp gains in the value of the currency generally cut into corporate profits and could further drag the economy along at a low level of growth. Many in the country view this as unacceptable given the nation's near twenty-year economic malaise and the rise of other Asian powers, such as China and India, which threaten to leave Japan in the dust. In September, the country intervened on the order of 2.1 trillion yen (close to $25.5 billion) in order to stop the currency's march higher. "I expect the Bank of Japan to closely cooperate with the government and take further necessary policy actions to end deflation," said Japanese Prime Minister Naoto Kan. "We have [intervened in the markets] and will take decisive action when necessary."

Although there are a variety of options for investors seeking exposure to the yen, by far the most popular is Rydex's FXY. The fund tracks the foreign exchange spot rate that measures the relative values of two currencies, the Japanese yen and the U.S. dollar. FXY  has amassed over $300 million assets on average daily volume of 350,000 shares. Despite Japan's foray into the currency markets -- which temporarily halted the yen's rise -- FXY has resumed its upward trajectory, posting gains of close to 11.3% so far in 2010 and about 3% over the past two weeks [also read Three Reasons Why Japanese Yen ETFs Are Headed For A Crash].

WisdomTree Dreyfus Brazilian Real Fund (BZF)
Thanks to massive capital inflows due to the enormous sale of PetroBras shares, the Brazilian real has been on a tear as of late. However, it is not just the recent equity offering that has been propelling the Brazilian currency; solid growth, in-demand exports and moderating inflation levels over the past year have pushed many investors into the currency, which has surged by more than 40% against the dollar since the start of 2009. In response, the Brazilian government has begun buying massive amounts of dollars -- close to $1 billion a day -- to help to stem the rising real tide. "We're in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness," said Guido Mantega, Brazil's finance minister, underscoring just how widespread the fears are over an increasingly strong real and concerns over further weakness in the dollar.

One ETF to keep an eye on here is BZF, which seeks to achieve total returns reflective of both money market rates in Brazil available to foreign investors and changes in value of the Brazilian Real relative to the U.S. dollar. The fund has surged by close to 12% over the past 52 weeks and has posted gains of 7% over the last three months. Should Brazil's intervention in the markets fail to take hold, look for this upward trend to continue well into the future [see Currency ETFs: A Better Way To Play The BRIC?].

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