By Eric Dutram of ETFdb

The U.S. economy continues its painfully slow growth, but 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 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, surging by close to 10% over the past three months. Given the ongoing troubles in the American market and 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.

While some smaller countries, such as Switzerland and South Korea, have intervened in 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. While this has a questionable long-term impact, few can argue that in the short term, this technique can produce the desired effect. Collateral damage is often felt throughout the home economy, though, as well as in the American markets. With a significantly weaker currency, emerging markets have greater difficult buying up commodities and other global products generally traded in U.S. dollars. Meanwhile, in the U.S., high costs from a strong dollar could prevent businesses from moving their operations here and price out American exports to international markets.

In normal market conditions this may fly under the radar, since the practices help keep commodity prices low and imports cheap and plentiful. But with an election coming up amid near double-digit unemployment, these practices have been put under the microscope by a host of U.S. politicians looking to win votes and secure manufacturing jobs. While there has been talk for years of "getting tough" on China's currency policies, Congress finally backed up its words with actions. In a rare bipartisan show of support, the House voted 348-79 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. cut into its massive trade deficit with China. Others fear 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.

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

WisdomTree Dreyfus Chinese Yuan Fund ( CYB)
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 out of the House tries 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 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 yuan is with WisdomTree's CYB. The fund seeks to achieve total returns reflective of money market rates in China available to foreign investors and changes in value of the yuan relative to the U.S. dollar. The actively managed fund has more than a half-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. The fund does pay out a reasonable dividend, though, and has a correlation with the S&P 500 of just 0.04, suggesting that it moves independently of U.S. stocks.

Rydex CurrencyShares Japanese Yen Trust ( 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 at a low level of growth. Many in the country view this as unacceptable given the nation's near 20-year economic malaise and the rise of other Asian powers such as China and India that 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) 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," Japanese Prime Minister Naoto Kan said. "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 the yen and dollar. FXY has amassed more than $300 million in 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 this year and about 3% over the past two weeks.

WisdomTree Dreyfus Brazilian Real Fund ( BZF)
Thanks to massive capital inflows from the enormous sale of Petrobras shares, the Brazilian real has been on a tear as of late. 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 last year. In response, the Brazilian government has begun buying massive amounts of dollars -- close to $1 billion a day -- to help 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 are the fears over an increasingly strong real and further weakness in the dollar.

One ETF to keep an eye on here is BZF, which seeks to achieve total returns reflective of money market rates in Brazil available to foreign investors and changes in value of the real relative to the dollar. The fund has surged by close to 12% over the past 52 weeks and has posted gains of 7% over the past three months. Should Brazil's intervention in the markets fail to take hold, look for this upward trend to continue well into the future.

>To see these stocks in action, visit the 3 ETFs to Watch in the Great Currency War portfolio on Stockpickr.

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At the time of publication, Eric Dutram had no positions in the securities mentioned. ETF Database is not an investment advisor, and any content published by ETF Database does not constitute individual investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. From time to time, issuers of exchange-traded products mentioned may place paid advertisements with ETF Database. All content on ETF Database is produced independently of any advertising relationships.