Strategies for a Weakening Dollar: Top Gold, Currency-Hedged, and Dollar ETFs to Watch

Recently, the U.S. dollar index has fallen to its lowest level since December 2023. This trend is closely linked to changes in the Federal Reserve's monetary policy. With the Fed likely to cut rates in its September meeting, the dollar’s movement has seen significant shifts. For investors, this currency market volatility means that certain ETFs may benefit. Here are some ETFs to watch as the dollar declines:

1. Gold ETFs

Gold is traditionally seen as a safe haven against dollar depreciation. As the dollar weakens, gold prices typically rise. This trend has been particularly noticeable recently, with gold prices surpassing $2,500 for the first time this week. Investors can consider the following gold-related ETFs:

• SPDR Gold Trust (GLD): One of the most liquid gold ETFs, GLD closely tracks the spot price of gold, making it suitable for investors seeking gold exposure.

• iShares Gold Trust: Similar to GLD, IAU also tracks the price of gold, providing another avenue for gold investment.

• VanEck Vectors Gold Miners ETF (GDX): This fund invests in gold mining companies. As gold prices rise, the profitability of these companies usually increases, boosting GDX’s performance.

2. Currency ETFs

The depreciation of the dollar directly impacts currency ETFs, especially those tracking foreign currencies. Notable currency ETFs include:

• Invesco CurrencyShares Japanese Yen Trust: With the yen appreciating, FXY has recently performed well. This ETF tracks the yen against the dollar, making it an important choice for investors expecting yen appreciation.

• Invesco CurrencyShares Euro Trust: This ETF tracks the euro against the dollar. When the dollar falls, the euro usually appreciates, so FXE may benefit.

• Invesco CurrencyShares Swiss Franc Trust: The Swiss franc is considered a safe-haven currency. FXF may see positive impacts when the dollar declines.

3. Currency-Hedged ETFs

In the context of a weakening dollar, unhedged international ETFs often perform better, as these funds benefit from the appreciation of other currencies. Here are some international ETFs to consider:

• $WisdomTree Europe Hedged Equity Fund(HEDJ)$: This fund focuses on the European market and hedges currency risk. As the dollar weakens, unhedged international stock funds may perform better, potentially benefiting HEDJ.

• WisdomTree Japan Hedged Equity Fund: Similar to HEDJ, DXJ invests in the Japanese market and hedges currency risk. With a weaker dollar, unhedged Japanese stock funds may outperform hedged funds.

4. ETFs Directly Related to the Dollar

The direct movement of the dollar affects some ETFs that focus on the dollar index or dollar trends:

• Invesco DB US Dollar Index Bullish Fund: UUP tracks the dollar index and is primarily used to reflect the strength or weakness of the dollar. When the dollar depreciates, UUP’s performance may be negatively impacted. Current trends in UUP can serve as an important reference for predicting future dollar movements.

• Invesco DB US Dollar Index Bearish Fund: UDN is the opposite of UUP, focusing on the expectation of dollar depreciation. When the dollar weakens, UDN usually performs better, making it an effective tool for hedging against dollar depreciation risk.

Summary

The trend of dollar depreciation offers investors diverse opportunities. Gold ETFs, currency ETFs, and currency-hedged ETFs perform differently during a dollar downturn, so investors should make informed decisions based on market trends and their investment goals. As the Federal Reserve's monetary policy evolves, closely monitoring these ETFs will help seize market opportunities and maximize investment returns.