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.
Dollar Strength Grows: ETFs to Gain From Greenback Momentum
Read MoreHide Full Article
Key Takeaways
The dollar hits a two-month high as expectations for more Fed hikes grow.
The U.S. Dollar Index has gained 2.01% over the past month and 2.66% YTD.
ETFs such as UUP and USDU could benefit from continued strength in the greenback.
The dollar has been rising amid growing expectations of further Fed rate hikes as policymakers seek to tackle inflation. With markets increasingly pricing in additional tightening in the coming months, the greenback could remain well supported in the near term, making a bullish stance on the dollar an attractive tactical opportunity.
Inflation remains a major concern for markets. With inflation still above the Fed’s 2% target, expectations for further rate hikes remain elevated. However, oil prices have eased recently after briefly touching the $100-per-barrel mark. While lower energy prices could help ease inflationary pressures, they could also weaken one of the key factors supporting the case for a stronger dollar.
That said, oil prices are not the only factor driving inflation concerns. Significant AI-related spending, war costs stemming from the Iran conflict and other economic pressures could continue to fuel price pressures even if oil prices decline further amid easing geopolitical tensions.
As a result, inflation could remain elevated and continue to shape expectations for Fed policy and the dollar.
According to TradingView, the U.S. Dollar Index (DXY) has gained 0.30% in the latest trading session and 0.60% over the past five days. The index has risen 2.01% over the past month and 3.62% over the past year.
The Dollar Gets a Boost From Rising Rate Bets
Last week, the Fed delivered its first rate hike in more than three years and indicated that another could be on the way. With markets anticipating a more restrictive monetary policy stance from the Fed down the road, the dollar could remain well supported through the remainder of 2026 and into the early months of 2027.
The value of the greenback is closely related to the Fed’s monetary policies, as its value moves inversely with interest rate adjustments by the Fed. Therefore, expectations for a more hawkish Fed stance could provide further support to the dollar.
Hawkish Fed Bets Gain Momentum
According to the CME FedWatch Tool, markets are now pricing in a greater likelihood of a rate hike at the Fed’s December meeting than at its October meeting.
Markets currently see a 53.1% probability of rates being raised to 4.0-4.25% at the October meeting. While this does not point to a high conviction for an October hike, the probability has risen sharply from just 8.8% a month ago, signaling that expectations for further rate increases have strengthened.
In December, markets estimate an 89.1% likelihood of the Fed hiking rates. Per the CME FedWatch tool, the probability of rates being increased to 4-4.25% at the December meeting has surged to 48.3%, compared with only 22.8% a month earlier. There is a 40.7% likelihood of the rate being hiked to 4.25-4.5%, rising significantly from a 3.5% likelihood just a month earlier.
ETFs to Gain From Dollar Strength
Against this backdrop, the dollar could remain well supported through year-end as markets increasingly price in the possibility of additional Fed rate hikes. Still, investors should keep an eye on the Fed’s policy path and broader economic developments when evaluating longer-term dollar exposure and diversification strategies.
Below, we have highlighted ETFs that may benefit from a stronger U.S. dollar and are well-suited for investors with a bullish outlook on the greenback.
Invesco DB US Dollar Index Bullish ETF (UUP - Free Report)
Invesco DB US Dollar Index Bullish ETF offers exposure to a basket of currencies relative to the U.S. dollar, increasing in value when the dollar appreciates. UUP has gathered an asset base of $395.9 million and charges an annual fee of 0.70%.
Invesco DB US Dollar Index Bullish ETF has a one-month average trading volume of about 1.49 million and has a Zacks ETF Rank #3 (Hold), with a Medium Risk outlook.
The fund has added 6.23% over the past year and 3.84% year to date. Although UUP remains down 0.14% over the past month, the fund is up 1.55% over the past three months.
WisdomTree Bloomberg U.S. Dollar Bullish ETF (USDU - Free Report)
WisdomTree Bloomberg U.S. Dollar Bullish ETF employs an active strategy and has gathered an asset base of $276.3 million, charging an annual fee of 0.50%. USDU has a dividend yield of 3.72%.
The fund has a one-month average trading volume of about 363,000 and a Medium Risk outlook.
WisdomTree Bloomberg U.S. Dollar Bullish ETF has added 4.19% over the past year and 2.21% year to date. Although USDU remains down 0.51% over the past month, the fund is up 0.80% over the past three months.
View the Zacks #1 Rank List
Image: Bigstock
Dollar Strength Grows: ETFs to Gain From Greenback Momentum
Key Takeaways
The dollar has been rising amid growing expectations of further Fed rate hikes as policymakers seek to tackle inflation. With markets increasingly pricing in additional tightening in the coming months, the greenback could remain well supported in the near term, making a bullish stance on the dollar an attractive tactical opportunity.
Inflation remains a major concern for markets. With inflation still above the Fed’s 2% target, expectations for further rate hikes remain elevated. However, oil prices have eased recently after briefly touching the $100-per-barrel mark. While lower energy prices could help ease inflationary pressures, they could also weaken one of the key factors supporting the case for a stronger dollar.
That said, oil prices are not the only factor driving inflation concerns. Significant AI-related spending, war costs stemming from the Iran conflict and other economic pressures could continue to fuel price pressures even if oil prices decline further amid easing geopolitical tensions.
As a result, inflation could remain elevated and continue to shape expectations for Fed policy and the dollar.
According to TradingView, the U.S. Dollar Index (DXY) has gained 0.30% in the latest trading session and 0.60% over the past five days. The index has risen 2.01% over the past month and 3.62% over the past year.
The Dollar Gets a Boost From Rising Rate Bets
Last week, the Fed delivered its first rate hike in more than three years and indicated that another could be on the way. With markets anticipating a more restrictive monetary policy stance from the Fed down the road, the dollar could remain well supported through the remainder of 2026 and into the early months of 2027.
The value of the greenback is closely related to the Fed’s monetary policies, as its value moves inversely with interest rate adjustments by the Fed. Therefore, expectations for a more hawkish Fed stance could provide further support to the dollar.
Hawkish Fed Bets Gain Momentum
According to the CME FedWatch Tool, markets are now pricing in a greater likelihood of a rate hike at the Fed’s December meeting than at its October meeting.
Markets currently see a 53.1% probability of rates being raised to 4.0-4.25% at the October meeting. While this does not point to a high conviction for an October hike, the probability has risen sharply from just 8.8% a month ago, signaling that expectations for further rate increases have strengthened.
In December, markets estimate an 89.1% likelihood of the Fed hiking rates. Per the CME FedWatch tool, the probability of rates being increased to 4-4.25% at the December meeting has surged to 48.3%, compared with only 22.8% a month earlier. There is a 40.7% likelihood of the rate being hiked to 4.25-4.5%, rising significantly from a 3.5% likelihood just a month earlier.
ETFs to Gain From Dollar Strength
Against this backdrop, the dollar could remain well supported through year-end as markets increasingly price in the possibility of additional Fed rate hikes. Still, investors should keep an eye on the Fed’s policy path and broader economic developments when evaluating longer-term dollar exposure and diversification strategies.
Below, we have highlighted ETFs that may benefit from a stronger U.S. dollar and are well-suited for investors with a bullish outlook on the greenback.
Invesco DB US Dollar Index Bullish ETF (UUP - Free Report)
Invesco DB US Dollar Index Bullish ETF offers exposure to a basket of currencies relative to the U.S. dollar, increasing in value when the dollar appreciates. UUP has gathered an asset base of $395.9 million and charges an annual fee of 0.70%.
Invesco DB US Dollar Index Bullish ETF has a one-month average trading volume of about 1.49 million and has a Zacks ETF Rank #3 (Hold), with a Medium Risk outlook.
The fund has added 6.23% over the past year and 3.84% year to date. Although UUP remains down 0.14% over the past month, the fund is up 1.55% over the past three months.
WisdomTree Bloomberg U.S. Dollar Bullish ETF (USDU - Free Report)
WisdomTree Bloomberg U.S. Dollar Bullish ETF employs an active strategy and has gathered an asset base of $276.3 million, charging an annual fee of 0.50%. USDU has a dividend yield of 3.72%.
The fund has a one-month average trading volume of about 363,000 and a Medium Risk outlook.
WisdomTree Bloomberg U.S. Dollar Bullish ETF has added 4.19% over the past year and 2.21% year to date. Although USDU remains down 0.51% over the past month, the fund is up 0.80% over the past three months.