With the Dollar Climbing, Hedge Your European Investments | ETF Trends

The U.S. dollar continues to confound investors with its bullish tone in the face of record-low interest rates. This is requiring European equities investors to hedge the euro, a strategy available to investors with the Xtrackers MSCI Europe Hedged Equity ETF (DBEU) and Xtrackers MSCI Eurozone Hedged Equity ETF (DBEZ).

“The performance of the USD Index is surprising,” an Investing Cube article said. “Global stocks, crude oil and other risky assets are all bullish, and the latest moves on additional stimulus from US Democrats are all factors that should cause a weakening on the US Dollar.”

“Perhaps, the stellar ISM Manufacturing Index data and weakness in the Euro, Pound, Peso and other currencies that are paired with the greenback may have a hand in the bullishness of the DXY,” the article added.

DBEU seeks investment results that correspond generally to the performance of the MSCI Europe US Dollar Hedged Index. The index is designed to track the performance of the developed markets in Europe, while mitigating exposure to fluctuations between the value of the U.S. dollar and the currencies of the countries included in the underlying index.

DBEZ seeks investment results that correspond generally to the performance of the MSCI EMU IMI US Dollar Hedged Index. The index tracks the performance of equity securities based in the countries in the European Monetary Union, while also seeking to mitigate exposure to fluctuations between the value of the U.S. dollar and the euro.

DBEU Chart

Will the United States Recover Quicker than Europe?

Some of the bullish sentiment towards the greenback can be attributed to the notion that the United States will rebound faster from the Covid-19 pandemic quicker than Europe.

“The dollar rose to two-month highs against the euro on Tuesday as markets saw the U.S. as likely to rebound sooner than Europe from the coronavirus pandemic,” a CNBC report noted. “The view was bolstered by moves in Washington toward more stimulus spending that contrasted with European lockdowns and expectations for a decline in euro zone GDP in the first three months of this year.

“Growth differentials are taking a toll on the euro and adding to the traction that we’ve seen for the U.S. currency this year,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.

“Europe might be about a year behind the U.S. in terms of a full recovery,” he added.

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