“There should be some kind of boost to the dollar” from the tax plan, Lee Ferridge, head of macrostrategy for North America at State Street Global Markets, told the WSJ. “But I will be using that as a selling opportunity.”
Investors can also capture the potential strength in the greenback ahead through dollar-related ETFs, such as the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks movements against a basket of currencies including euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
Additionally, the WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEARCA: USDU) tracks the dollar against a broader group of developed and emerging market currencies in an attempt to outperform the Bloomberg Dollar Total Return Index. That ETF features exposure to emerging markets currencies whereas UUP only measures the dollar against major developed market currencies.
Alternatively, if traders believe the USD rally may be short lived, the PowerShares DB US Dollar Index Bearish Fund (NYSEARCA: UDN), which acts as the inverse or bearish play to UUP, could benefit from any weakness in the dollar.
For more information on currency hedging strategies, visit our currency hedged ETFs category.