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U.S. Dollar Climbs: ETFs to Gain/Lose

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Despite a super-dovish Fed, the greenback has been steady in recent trading with about a 2.5% one-month gain in Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) . The reason for the rally is the U.S. economy’s improved position among developed markets and the greenback being viewed as a safe-haven asset.

While the coronavirus outbreak is likely to send the United States into a recession in the near term along with many other global economies, the severity of the economic disturbance in the United States appears much lower than that of the Eurozone and Japan as well as many emerging economies. Before the eruption of the coronavirus, the U.S. economy grew 2.1% in the fourth quarter while the eurozone grew just 0.1% (read: Are U.S. Assets Acting as Safe Havens? ETFs in Focus).

So, investors are selling their possessions to  retain money in U.S. dollars due to the unparalleled uncertainty caused by the virus pandemic. So far this month, the fund UUP has gathered about $414.7 million in assets amid the Wall Street crash.

Given that the coronavirus scare is showing no signs of abating, the bullish trend in the greenback is expected 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) (read: Top & Flop Currency ETFs of 2019).

Currency-Hedged Japan

Before the coronavirus outbreak, Japan's economic growth was expected to decelerate moderately in 2020, due to a combination of consumption tax hike and sluggish global economy.

However, now, Japan’s Prime Minister Shinzo Abe plans to launch massive pandemic stimulus. Also, likelihood of buying of exchange-traded funds by the Bank of Japan and public pension funds may lead to lower loss in Japan’s shares than the global markets. Thus, currency-hedged Japan ETFs like WisdomTree Japan Hedged Equity ETF (DXJ - Free Report) should do well.

Currency-Hedged Europe

In its latest move to prevent an economic fallout from coronavirus, the European Central Bank (ECB) has announced a new, expanded program to buy up to 750 billion euros ($820 billion) in government and private sector bonds as well as commercial paper by year-end. The new announcement followed the central bank’s previous stimulus (announced only last week) to support bank lending and the expansion of its asset purchase program by 120 billion euros ($135.28 billion). Plus, there is ECB’s regular monetary policy of 20 billion euros per month in existing bond purchases and a negative rate on deposits. WisdomTree Europe Hedged Equity ETF (HEDJ - Free Report) may gain out of it over the long term.

ETFs to Sell

Emerging markets tend to underperform in a rising dollar environment. In any case, many developing economies are reeling under pressure due to the coronavirus spread. Now, with the U.S. dollar rising, iShares MSCI Emerging Markets ETF (EEM - Free Report) stands to lose (read: 5 Emerging Market ETFs Beating S&P 500 Amid Virus Scare).

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