Dollar Strength Reveals Merits of Currency Hedged ETFs | ETF Trends

As the U.S. dollar pushes higher, investors who are looking into international market and related stock exchange traded funds should consider hedging foreign exchange currency risks.

The U.S. dollar hit fresh 2018 highs Tuesday, with the U.S. Dollar Index now hovering around 93.1, on safe-haven demand amid expectations President Donald Trump will exit Iran nuclear deal talks and reinstate sanctions.

The dollar index, which tracks the USD’s movement against a group of six major currencies, also has strengthened 4.5% in three weeks after other major central banks did not show any hints of following the Federal Reserve in normalizing their monetary policies.

“The dollar reflects the incremental economic strength of the U.S. versus Europe and other places,” Jack Ablin, chief investment officer and founding partner at Cresset Wealth Advisors, told Reuters. “The dollar is somewhat undervalued relative to the euro and the pound but it is very overvalued relative to the Japan yen.”

Europe, Japan and Emerging Markets

Despite the forex risks, many are still looking into international plays. For example, Deutsche Bank has been overweight Europe, Japan and the emerging markets.

“It is still an international theme,” Robert Bush, ETF Strategist for DWS, told ETF Trends.