As they say in gambling, it’s typically best to follow the smart money and in this case, it’s global investment firm Goldman Sachs and their bearishness when it comes to the U.S. dollar. According to a recent CNBC article, the firm is sensing weakness in the greenback with a forthcoming U.S. election and risky Covid-19 vaccine trials.
The article noted that in “a note to investors Friday, Goldman analysts said they saw ‘low odds’ for the most dollar-positive outcome by the end of the year. They named this as an electoral victory for President Donald Trump, combined with a meaningful delay to vaccine progress.”
“If the vaccines are highly effective, these early results may be sufficient to imply a high probability of emergency FDA approval by year-end,” said Goldman’s Zach Pandl, co-head global FX, rates and EM strategy.
“To be sure, there are important risks: we are most uncertain about the length of the vote count (especially for the Senate) and the equity market reaction to a ‘blue wave’. But the wide margin in current polls reduces the risk of a delayed election result, and the prospect for near-term vaccine breakthroughs may provide a backstop for risky assets,” Pandl wrote.
Investors who want to take a contrarian view on a weakening U.S. dollar can look at greenback strength via the Invesco DB US Dollar Bullish (NYSEArca: UUP). 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.
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.