Market Overview

ETFs for the Demise of the Dollar

ETFs for the Demise of the Dollar

The U.S. Dollar Index continues its recent slide after the jobs numbers announced early Tuesday, and is now testing a new two-year low. The index measures the performance of the U.S. Dollar versus a basket of six foreign currencies including the euro and the Japanese yen.

Investors can invest in the index via the PowerShares DB U.S. Dollar Index Bullish ETF (NYSE: UUP).

The trend is clearly in the favor of the U.S. Dollar bears and, with no end in sight to the current Fed policies, it appears the trend will continue. The poor jobs numbers will likely keep the Fed from tapering in 2013 and thus the end result is printing of more greenbacks. The more of the currency in circulation, the lower the value. This is simple supply versus demand economics.

Here are a few ETFs to hedge against the continued fall in the U.S. dollar:

PowerShares DB U.S. Dollar Index Bearish (NYSE: UDN). As the index is hitting new lows the ETF that tracks the inverse is doing the exact opposite, hitting highs. Investing in UDN is a bet that the value of the greenback will fall versus the basket of foreign currencies. This play is the ideal for the theory that the U.S. dollar will weaken in general across the board, and it removes the risk of betting on one foreign currency. The largest exposure is to the euro at 57 percent, followed by the Japanese yen at 14 percent, and the British pound with 12 percent. Some investors feel this is a bet against America, when in reality it is a way to profit from the government lowering the value of the currency.

CurrencyShares Euro Trust (NYSE: FXE). Moving in inverse lockstep, the euro is hitting a new multi-year high as its peer, the greenback, is hitting lows. FXE is designed track the price of the euro versus the U.S. dollar on a daily basis. The euro is attempting to break a long-term downtrend that has plagued the currency since the financial crisis began in 2007. The most recent breakout above the 2013 high of $136 was a significant move for the ETF. As more signs of recovery in the eurozone continue to roll out, investors will be more willing to hold onto euros versus U.S. dollars, just another negative for the greenback.

WisdomTree Chinese Yuan Fund (NYSE: CYB).This ETF seeks to achieve returns that reflect both the money market rates in China and the changes in the value of the Chinese yuan relative to the U.S. dollar. The ETF typically moves a few pennies per day -- and even though the chart is very bullish the ETF is only up 3.5 percent on the year. This option is interesting because most believe the Chinese manipulate their currency, so it does not rise too much versus the U.S. dollar. Even though that may be true, CYB is trading at a multi-year high and could be a play to hide some money in the even the greenback continues to lose value.


Related Articles (CYB + FXE)

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