While the Federal Reserve kicks off its meeting today, one question on the minds of many is what the fate of the U.S. dollar and its related exchange traded fund (ETF) will be. Are we in store for further weakening?

The Federal Open Market Committee and G-20 industrialized and developing nations meeting has many investors adjusting their currency positions and evaluating their risk appetite for the near future.

Marc Gongloff for The Wall Street Journal reports that the major forces that could save the U.S. dollars’ worth include a U.S. economic recovery or another global financial meltdown accompanied by deflationary pressure. But who could gain if the dollar remains depressed?

  • The carry trade. Many are taking advantage of 0% U.S. financing in order to borrow dollars and use them to purchase higher-yielding assets, including Australian dollars and emerging market stocks.
  • Domestic tourism. A cheap currency could attract more foreign visitors to the United States.
  • Commodities. Oil is priced in U.S. dollars, and some gold is priced in dollars, as well. When the dollar weakens, these commodities become cheaper for buyers.

Many investors are betting against the dollar, and the risk factor is edging up. The government debt is the highest it’s been since the 1950s (as a percentage of GDP, at least), which gives analysts all the more reason to believe the dollar could continue to fade.

Play both sides of the dollar with these two ETFs:

  • PowerShares DB US Dollar Index Bullish (NYSEArca: UUP): down 7.5% year-to-date
  • PowerShares DB US  Dollar Index Bearish (NYSEArca: UDN): up 6.6% year-to-date

For more stories about the U.S. dollar, visit our currency category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.