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The U.S. dollar is suffering this month as investors are bracing up for the Federal Reserve to start lowering interest rates next month amid the unwinding of the so-called Trump trades. The greenback has fallen 2.2% against a basket of rival currencies this month to the lowest level since the start of the year. As such, Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) , tracking the dollar index, has shed 2.3% over the past month.
Why is the Dollar Falling?
The latest Fed minutes released yesterday signaled that rate cuts are likely at the next monetary policy meeting in September. The rounds of economic data point to a slowdown in the economy, reinforcing bets that policymakers will cut interest rates in September. The labor market cooled in July as the economy added 114,000 jobs, 35% fewer than expected. Unemployment rose to 4.3% — the highest since October 2021 — and represented the fourth consecutive monthly increase. U.S. manufacturing activity dropped to an eight-month low in July amid a slump in new orders.
Additionally, a big downward revision in U.S. payrolls for the 12-month period through March 2024 supports the rate cut bets. The Bureau of Labor Statistics’ preliminary annual benchmark review of employment data showed that the U.S. economy created 818,000 fewer jobs last year than originally reported. It marks the largest downward revision since 2009. Market participants are now pricing in a 100% chance of a rate cut next month, according to CME Group’s FedWatch tool.
Meanwhile, the rising prospect of a Democratic victory in the presidential race has led to weakness in the greenback since late July. That’s because Trump’s policy proposals, including expanded tariffs and immigration restrictions, are seen as potentially more inflationary than those outlined by Kamala Harris, a Democrat candidate (read: ETFs & Stocks in Focus on Kamala Harris' Shift in Strategy).
What Does a Weak Dollar Mean?
A weak dollar benefits blue-chip companies, which derive most of their revenues from international markets. This is because a weak dollar has made dollar-denominated assets cheap for foreign investors, making U.S. multinationals more competitive, thereby leading to increased profits. As such, companies having a higher percentage of international sales will likely outperform.
Moreover, commodities, emerging markets as well as gold mining stocks will get a lift from a weak dollar. A weakening dollar generally pulls in more capital into emerging markets, propelling the stocks higher for most emerging nations.
Given this, we have highlighted a few ETFs that will benefit from the current trend and are likely to do so as long as the dollar remains weak.
With AUM of $22.1 billion, Vanguard Mega Cap Growth ETF offers diversified exposure to the largest growth stocks in the U.S. market by tracking the CRSP US Mega Cap Growth Index. It holds 71 securities in its basket with key holdings in information technology, consumer discretionary and healthcare. Vanguard Mega Cap Growth ETF charges 7 basis points in annual fees and trades in a good volume of around 375,000 shares a day on average. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Stocks Log Best Week of the Year: Winning ETFs).
Invesco DB Commodity Index Tracking Fund (DBC - Free Report)
Invesco DB Commodity Index Tracking Fund follows the DBIQ Optimum Yield Diversified Commodity Index Excess Return, composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world. With an AUM of $1.5 billion, Invesco DB Commodity Index Tracking Fund trades in an average daily volume of 1 million shares and charges 87 bps of annual fees (read: Follow Goldman With These Commodity ETFs).
iShares MSCI Emerging Markets ETF offers exposure to large and mid-sized companies in the emerging markets and follows the MSCI Emerging Markets Index. It holds 1,236 securities, with Chinese firms making up 24.4% of the portfolio. India, Taiwan and South Korea round off the next three spots with a double-digit exposure each.
iShares MSCI Emerging Markets ETF charges 70 bps of annual fees and trades in an average daily volume of 25 million shares. It has an AUM of $17.9 billion and a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
VanEck Gold Miners ETF is the most popular and actively traded gold miner ETF with AUM of $14.7 billion and an average daily volume of around 17 million shares. It follows the NYSE Arca Gold Miners Index, which measures the overall performance of companies involved in the gold mining industry. GDX holds 60 stocks in its basket. Canadian firms account for about 42.1% of the portfolio, while the United States (19.4%), South Africa (10.6%) and Australia (10.1%) round off the next three spots. VanEck Gold Miners ETF charges 51 bps in annual fees.
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ETFs to Bet on Dollar Weakness
The U.S. dollar is suffering this month as investors are bracing up for the Federal Reserve to start lowering interest rates next month amid the unwinding of the so-called Trump trades. The greenback has fallen 2.2% against a basket of rival currencies this month to the lowest level since the start of the year. As such, Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) , tracking the dollar index, has shed 2.3% over the past month.
Why is the Dollar Falling?
The latest Fed minutes released yesterday signaled that rate cuts are likely at the next monetary policy meeting in September. The rounds of economic data point to a slowdown in the economy, reinforcing bets that policymakers will cut interest rates in September. The labor market cooled in July as the economy added 114,000 jobs, 35% fewer than expected. Unemployment rose to 4.3% — the highest since October 2021 — and represented the fourth consecutive monthly increase. U.S. manufacturing activity dropped to an eight-month low in July amid a slump in new orders.
Additionally, a big downward revision in U.S. payrolls for the 12-month period through March 2024 supports the rate cut bets. The Bureau of Labor Statistics’ preliminary annual benchmark review of employment data showed that the U.S. economy created 818,000 fewer jobs last year than originally reported. It marks the largest downward revision since 2009. Market participants are now pricing in a 100% chance of a rate cut next month, according to CME Group’s FedWatch tool.
Meanwhile, the rising prospect of a Democratic victory in the presidential race has led to weakness in the greenback since late July. That’s because Trump’s policy proposals, including expanded tariffs and immigration restrictions, are seen as potentially more inflationary than those outlined by Kamala Harris, a Democrat candidate (read: ETFs & Stocks in Focus on Kamala Harris' Shift in Strategy).
What Does a Weak Dollar Mean?
A weak dollar benefits blue-chip companies, which derive most of their revenues from international markets. This is because a weak dollar has made dollar-denominated assets cheap for foreign investors, making U.S. multinationals more competitive, thereby leading to increased profits. As such, companies having a higher percentage of international sales will likely outperform.
Moreover, commodities, emerging markets as well as gold mining stocks will get a lift from a weak dollar. A weakening dollar generally pulls in more capital into emerging markets, propelling the stocks higher for most emerging nations.
Given this, we have highlighted a few ETFs that will benefit from the current trend and are likely to do so as long as the dollar remains weak.
ETFs to Bet On
Vanguard Mega Cap Growth ETF (MGK - Free Report)
With AUM of $22.1 billion, Vanguard Mega Cap Growth ETF offers diversified exposure to the largest growth stocks in the U.S. market by tracking the CRSP US Mega Cap Growth Index. It holds 71 securities in its basket with key holdings in information technology, consumer discretionary and healthcare. Vanguard Mega Cap Growth ETF charges 7 basis points in annual fees and trades in a good volume of around 375,000 shares a day on average. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Stocks Log Best Week of the Year: Winning ETFs).
Invesco DB Commodity Index Tracking Fund (DBC - Free Report)
Invesco DB Commodity Index Tracking Fund follows the DBIQ Optimum Yield Diversified Commodity Index Excess Return, composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world. With an AUM of $1.5 billion, Invesco DB Commodity Index Tracking Fund trades in an average daily volume of 1 million shares and charges 87 bps of annual fees (read: Follow Goldman With These Commodity ETFs).
iShares MSCI Emerging Markets ETF (EEM - Free Report) )
iShares MSCI Emerging Markets ETF offers exposure to large and mid-sized companies in the emerging markets and follows the MSCI Emerging Markets Index. It holds 1,236 securities, with Chinese firms making up 24.4% of the portfolio. India, Taiwan and South Korea round off the next three spots with a double-digit exposure each.
iShares MSCI Emerging Markets ETF charges 70 bps of annual fees and trades in an average daily volume of 25 million shares. It has an AUM of $17.9 billion and a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
VanEck Gold Miners ETF (GDX - Free Report)
VanEck Gold Miners ETF is the most popular and actively traded gold miner ETF with AUM of $14.7 billion and an average daily volume of around 17 million shares. It follows the NYSE Arca Gold Miners Index, which measures the overall performance of companies involved in the gold mining industry. GDX holds 60 stocks in its basket. Canadian firms account for about 42.1% of the portfolio, while the United States (19.4%), South Africa (10.6%) and Australia (10.1%) round off the next three spots. VanEck Gold Miners ETF charges 51 bps in annual fees.