How ETF Investors Can Play a Stronger USD

With the U.S. dollar appreciating against foreign currencies, currency traders and international investors can ride the wave or hedge against weakness in other areas through exchange traded funds.

The Dollar Index (DXY), which tracks dollar moves against a basket of widely observed developed market currencies, was hovering around 94.0 Wednesday, its highest level since late 2017.

The U.S. dollar has been strengthening on a tightening monetary policy out of the Federal Reserve – higher rates typically attract investors to a currency because of the prospect for greater returns.

U.S. Dollar ETF Plays for ETF Investors

ETF traders can also gain exposure to an appreciating greenback through targeted ETF strategies. For instance, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) tracks the price movement of the U.S. dollar against a basket of currencies, including the euro 57.6%, Japanese yen 13.6%, British pound 11.9%, Canadian dollar 9.1%, Swedish krona 4.2% and Swiss franc 3.6%.

Additionally, the actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU) tracks the USD against a broader basket of developed and emerging market currencies, including China, India, South Korea, Switzerland, Australia, Mexico, United Kingdom, Canada, Japan and Europe.

Alternatively, ETF traders may take on a more focused approach through currency-specific ETFs. For instance, the ProShares Short Euro (NYSEArca: EUFX) is designed to provide 100% of the inverse, or opposite, return of the U.S. dollar price of the euro, on a daily basis and the ProShares UltraShort Euro (NYSEArca: EUO) provides 200% of the inverse return of the U.S. dollar price of the euro on a daily basis. The Market Vectors Double Short Euro ETN (NYSEArca: DRR) tracks the Double Short Euro Index, which also provides a -200% exposure to the euro. Consequently, these types of inverse ETFs may be used to capitalize on a stronger USD or weakening EUR.

Traders can also utilize the ProShares UltraShort Yen (NYSEArca: YCS), which tries to reflect the daily -2x or -200% daily return of the USD/JPY currency pair, to hedge further price depreciation in the yen currency.

For more information on the foreign exchange markets, visit our currency ETFs category.