Now that the U.S. dollar is trading at its highest level in about nine years, wary investors may consider an inverse exchange traded fund to hedge against a sudden turn.
The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks the U.S. dollar movements against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, has increased 12.2% over the past year.
However, for those with a contrarian viewpoint on further bullishness in the greenback, the PowerShares DB US Dollar Index Bearish Fund (NYSEArca: UDN) takes the inverse, or short, performance of the U.S. dollar against the same basket of six major currencies. Additionally, for the more aggressive traders, the PowerShares DB 3x Short US Dollar Index Futures ETN (NYSEArca: UDNT) tries to provide a -300%, or three times the inverse, returns of the U.S. dollar.
Alternatively, currency traders can bet on the other side of the trade and go long foreign currencies, with something like the CurrencyShares Euro Currency Trust (NYSEArca: FXE) to play any strength in the euro currency, writes Michael Brush for MarketWatch.
Lawrence G. McDonald, a market strategist, points out that a strong dollar is creating problems in the debt markets and pressuring U.S. growth. Specifically, McDonald believes that a strong dollar is pushing debt closer to default for overseas borrowers, which would trigger systemic risks. Since many foreign borrowers acquired debt denominated in U.S. dollars, a stronger USD makes it harder for others overseas to repay debt. [King Dollar Makes a Pauper of Some EM Bond ETFs]