We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Despite a dovish Fed, the greenback has been steady in recent trading, with 2.6% year-to-date gain in Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) . The reason for this rally is the U.S. economy’s improved position amid vaccine distribution.
The dollar index rose against a basket of most major currencies lately, beating a two-week high despite falling yields on U.S. Treasuries as the Federal Reserve Chair Jerome Powell told Congress inflationary pressure will not be uncontrollable.
Notably, a third wave of the COVID-19 pandemic has already hit Europe. Germany is prolonging its lockdown and advising citizens to stay indoors during the Easter holidays. India has also been witnessing a surge in COVID-19 cases.
It appears to be a win-win situation for the greenback as the global health crisis has not dissipated yet. This fact provides support to the safe-haven trades. On the other hand, vaccination might reverse the economic slowdown in the United States and bring the economy back onto a faster growth path, which will boost the country’s currency.
Given the above-mentioned facts, the bullish trend in the greenback is likely to continue, at least in the near term.
ETFs to Buy
So, investors looking to play the strengthening U.S. dollar could consider the below-mentioned ETFs:
U.S. Dollar
The dollar strength can sure be played with UUP and WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU - Free Report) .
Small Caps
Since small caps are closely tied to the U.S. economy and do not get affected by a rising dollar due to their limited foreign exposure, iShares Russell 2000 ETF (IWM - Free Report) ) could be a good pick. Small-cap investing is more prudent at this time given a dovish Fed and massive stimulus rollout under the Biden presidency.
Dollar-Denominated Bond ETFs
Investors seeking EM exposure amid a strong dollar can consider dollar-denominated EM bond ETFs. These funds invest in sovereign debt from a variety of emerging nations via U.S. dollar-denominated securities. Notably, the debt route is less risky than equities. Moreover, most emerging markets have low debt levels compared to developed countries. iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB - Free Report) is one such ETF. The fund yields 4.00% annually.
ETFs to Sell
Inverse Dollar Fund
Needless to say, if the dollar is rising, a short position on the currency would result in negative returns. Invesco DB US Dollar Index Bearish Fund (UDN - Free Report) should thus be avoided.
Commodities
The upsurge in the dollar is bad for raw materials and commodities as these are priced in the U.S. dollar. Furthermore, prolonged strength in the U.S. dollar might constrict growth picture, which in turn weigh on commodities’ prices. Invesco DB Commodity Index Tracking Fund (DBC - Free Report) can thus retreat ahead.
Large-Caps
Since large-cap stocks have greater foreign exposure, the strengthening dollar is negative for this capitalization. BofA Global Research estimates that every 10% drop in the U.S. dollar translates to about a 3% boost to S&P earnings, as quoted on Reuters. It is expected that the opposite will happen if the greenback surges. SPDR S&P 500 ETF Trust (SPY - Free Report) should thus be closely watched.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
U.S. Dollar to Strengthen? ETFs to Gain/Lose
Despite a dovish Fed, the greenback has been steady in recent trading, with 2.6% year-to-date gain in Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) . The reason for this rally is the U.S. economy’s improved position amid vaccine distribution.
The dollar index rose against a basket of most major currencies lately, beating a two-week high despite falling yields on U.S. Treasuries as the Federal Reserve Chair Jerome Powell told Congress inflationary pressure will not be uncontrollable.
Notably, a third wave of the COVID-19 pandemic has already hit Europe. Germany is prolonging its lockdown and advising citizens to stay indoors during the Easter holidays. India has also been witnessing a surge in COVID-19 cases.
It appears to be a win-win situation for the greenback as the global health crisis has not dissipated yet. This fact provides support to the safe-haven trades. On the other hand, vaccination might reverse the economic slowdown in the United States and bring the economy back onto a faster growth path, which will boost the country’s currency.
Given the above-mentioned facts, the bullish trend in the greenback is likely to continue, at least in the near term.
ETFs to Buy
So, investors looking to play the strengthening U.S. dollar could consider the below-mentioned ETFs:
U.S. Dollar
The dollar strength can sure be played with UUP and WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU - Free Report) .
Small Caps
Since small caps are closely tied to the U.S. economy and do not get affected by a rising dollar due to their limited foreign exposure, iShares Russell 2000 ETF (IWM - Free Report) ) could be a good pick. Small-cap investing is more prudent at this time given a dovish Fed and massive stimulus rollout under the Biden presidency.
Dollar-Denominated Bond ETFs
Investors seeking EM exposure amid a strong dollar can consider dollar-denominated EM bond ETFs. These funds invest in sovereign debt from a variety of emerging nations via U.S. dollar-denominated securities. Notably, the debt route is less risky than equities. Moreover, most emerging markets have low debt levels compared to developed countries. iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB - Free Report) is one such ETF. The fund yields 4.00% annually.
ETFs to Sell
Inverse Dollar Fund
Needless to say, if the dollar is rising, a short position on the currency would result in negative returns. Invesco DB US Dollar Index Bearish Fund (UDN - Free Report) should thus be avoided.
Commodities
The upsurge in the dollar is bad for raw materials and commodities as these are priced in the U.S. dollar. Furthermore, prolonged strength in the U.S. dollar might constrict growth picture, which in turn weigh on commodities’ prices. Invesco DB Commodity Index Tracking Fund (DBC - Free Report) can thus retreat ahead.
Large-Caps
Since large-cap stocks have greater foreign exposure, the strengthening dollar is negative for this capitalization. BofA Global Research estimates that every 10% drop in the U.S. dollar translates to about a 3% boost to S&P earnings, as quoted on Reuters. It is expected that the opposite will happen if the greenback surges. SPDR S&P 500 ETF Trust (SPY - Free Report) should thus be closely watched.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>