The U.S.-dollar-based exchange-traded fund Invesco DB US Dollar Index Bullish Fund (UUP Quick QuoteUUP - Free Report) has lost about 1% so far this year (as of Feb. 4, 2025). Below, we highlight a few reasons that could keep the greenback in good shape in the near term.

Trump Tariffs

On Jan. 30, 2025, President Donald Trump reignited trade tensions by hinting at impending 25% tariffs on Mexico and Canada. In addition to targeting Mexico and Canada, Trump imposed new tariffs on Chinese goods, citing China’s role in the fentanyl trade. He imposed a 10% duty on all Chinese imports starting Feb. 4, 2025, following the punitive tariffs he imposed on about $370 billion worth of Chinese goods during his first term.

Despite the tariff delay for Canada and Mexico (currently), market concerns persist over the broader trade landscape. Trump said on Feb. 4, 2025, that he's in no hurry to speak with China's Xi to ease the trade war. In response, China imposed targeted tariffs on U.S. goods and warned companies like Google of possible sanctions.

With the Trump tariffs expected to take center stage in the coming days and the President not bothering about the retaliatory tariffs, the U.S. dollar should be in a sweet spot.

Fed Holds Rates Steady

In the January meeting, the Federal Reserve opted to hold interest rates steady at 4.25% to 4.5%, signaling a cautious stance on further reductions. This decision reflects lingering inflation concerns and uncertainty surrounding President Donald Trump’s economic policies, particularly on trade and immigration. With no immediate plans for additional rate cuts, the Fed appears to be adopting a wait-and-see approach. A less-dovish Fed is a plus for the greenback.

Decent U.S. GDP Growth, If Not Upbeat

U.S. Gross Domestic Product (GDP) grew at an annual rate of 2.3% in the fourth quarter, the Bureau of Economic Analysis' (BEA) first estimate showed on Jan. 30, 2025. This reading followed the 3.1% expansion recorded in the third quarter and came in below the market expectation of 2.6%.

In the fourth quarter, the Gross Domestic Product Price Index increased by 2.2%, below analysts' estimate of 2.5%. Additionally, the core Personal Consumption Expenditures Price Index rose by 2.5% on a quarterly basis, matching the market consensus.

ETFs to Gain

Against this backdrop, below we highlight a few exchange-traded funds (ETFs) that should gain in the near term.

Invesco DB US Dollar Index Bullish Fund (UUP Quick QuoteUUP - Free Report)

Invesco DB US Dollar Index Bullish Fund is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies. This is done by tracking the Deutsche Bank Long USD Currency Portfolio Index - Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities.

WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU Quick QuoteUSDU - Free Report)

WisdomTree Bloomberg U.S. Dollar Bullish Fund is another way to play the rise in the dollar directly. It offers exposure to the U.S. dollar against a basket of foreign currencies by tracking the Bloomberg Dollar Total Return Index. WisdomTree Bloomberg U.S. Dollar Bullish Fund exhibits strong negative correlations to international equity and bond portfolios.

iShares Russell 2000 ETF (IWM Quick QuoteIWM - Free Report)

A strong dollar provides an edge to domestic-focused companies as small caps do not have much exposure to the international market. iShares Russell 2000 ETF will benefit from a rising dollar. It provides exposure to a broad basket of about 2,000 stocks by tracking the Russell 2000 Index.

iShares Currency Hedged MSCI EAFE ETF (HEFA Quick QuoteHEFA - Free Report)  

A strong greenback will compel investors to recycle their portfolios into the currency-hedged ETFs. For those seeking exposure to the developed market, iShares Currency Hedged MSCI EAFE ETF could be an intriguing pick. It targets the developed international stock market in Europe, Australasia and the Far East with no currency risk.