Down, But Not Out: Greenback Still World's Currency

Cash is still king and right now from a global perspective, it’s still the U.S. dollar that reigns as the world’s currency. While gold has been winning more fans versus the dollar in 2020 amid the Covid-19 pandemic, the greenback is still viewed as the first option.

“The US dollar’s slide during the coronavirus crisis has provoked much angst about the future of the currency,” a Financial Times article said. “Some have argued that its roughly 6 percent drop on a trade-weighted basis since April is just the start of a much sharper collapse in the currency’s value, one akin to the 1970s and 1980s when it fell more than 30 percent. Others have made a bolder claim: the dollar’s status as the world’s reserve currency is in peril. But according to Adam Slater, lead economist at Oxford Economics, such fears are overblown. Not only is further depreciation likely to be limited, but the currency’s standing as the world’s currency of choice is secure.”

“There have been quite a lot of dollar corrections over the last 20 years or so, and it seems like almost every time this happens we get the same stories [asking]if this could be the beginning of the end of the dollar,” said Mr Slater. “But the facts refuse to change on the ground.”

ETF traders looking for more dollar bullishness can check out the Invesco DB US Dollar Bullish (NYSEArca: UUP) or the WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU). UUP tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.

On the other hand, the actively managed USDU tracks the USD against a broader basket of developed and emerging market currencies, including China, India, South Korea, Switzerland, Australia, Mexico, the United Kingdom, Canada, Japan, and Europe.

USDU provides investors with:

  • a broad, dynamic, and effective way of gaining exposure to the U.S. dollar against a basket of foreign currencies in an ETF structure.
  • an alternatives bucket as a broad-based diversifier as it exhibits strong negative correlations to international equity and bond portfolios.

USDU Chart

USDU data by YCharts

Conversely, an alternate way to play a weaker dollar is via gold, which typically moves opposite of the U.S. dollar. Investors can use gold-backed funds via the SPDR Gold Shares (NYSEArca: GLD).

Another fund to consider is the Global X Gold Explorers ETF (GOEX). The fund seeks to provide investment results that correspond generally to the price and yield performance of the Solactive Global Gold Explorers & Developers Total Return Index, which is a free float-adjusted, liquidity-tested and market capitalization-weighted index that is designed to measure broad-based equity market performance of global companies involved in gold exploration.

For more market trends, visit ETF Trends.