Keep Your ETFs Hedged with Fund Strategies from DWS | ETF Trends

The dollar has been on the move as of late, while the Japanese yen and euro have been falling against the greenback. This highlights the need for a currency hedging strategy inherent in ETFs like the Xtrackers MSCI Japan Hedged Equity ETF (DBJP) and the Xtrackers MSCI Europe Hedged Equity ETF (DBEU).

“The U.S. dollar reached a six-week high on Monday on weakness in the euro, Swiss franc and Japanese yen amid views that the United States has an advantage in growing its economy and vaccinating its population against COVID-19,” a Reuters article said.

DBJP seeks investment results that correspond generally to the performance of the MSCI Japan US Dollar Hedged Index. The fund, using a ‘passive’ or indexing investment approach, seeks investment results that correspond generally to the performance, of the underlying index, which is designed to track the performance of the Japanese equity market while mitigating exposure to fluctuations between the value of the U.S. dollar and the Japanese yen.

DBEU seeks investment results that correspond generally to the performance of the MSCI Europe US Dollar Hedged Index. Like DBJP, the fund uses a ‘passive’ or indexing investment approach that corresponds generally to the performance of the underlying index, which 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.

DBJP Chart

U.S. Dollar Building Off Early 2021 Strength

The Federal Reserve decided to keep interest rates in check last week, which should have subsequently put downward pressure on the dollar. However, the greenback is building off early 2021 strength in equities with the S&P 500 up slightly at 0.47% thus far.

“The dollar index was up 0.37% to 90.955 in late afternoon trading in New York, just off of levels last seen on Dec. 21,” Reuters said. “The Japanese yen weakened, hovering around 105 to the U.S. dollar, a level not seen since mid-November.”

“The euro was off 0.57% to $1.2069. Against the Swiss franc the dollar was up 0.66% to 0.8967 to the dollar, its weakest level in two months,” the article added further. “The moves came on evidence pointing toward a stronger recovery from the coronavirus pandemic for the United States than for other countries.”

A similar dollar index, the Dow Jones FXCM Dollar Index, is down about 4% the past year, but the one-month chart tells a different story.

^DJFXCMD Chart

The one-month chart shows a slight rise in the dollar with a 0.64% gain. Despite low interest rates, which typically keep the dollar down, the greenback is bucking the trend.

^DJFXCMD Chart

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