We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
The U.S. greenback has seen a stellar run so far this year, with Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) logging a 2.8% return. However, things may go downhill in the coming days, with the Fed expected to cut rates in September.
Market Forecast: Dollar Weakening Against Yen
Geoffrey Yu, senior EMEA market strategist at BNY, shared his outlook on the U.S. dollar's performance against major currencies, telling CNBC that the dollar may continue to weaken against the Japanese yen through the end of the year. This is especially true given that the Bank of Japan is on a policy tightening mode, which could strengthen the yen against the greenback.
On Wednesday, the dollar was trading 0.6% higher at 146.09 yen around 11:50 AM London time. This followed a dip below the significant 145-yen level for the first time since Jan. 6, indicating a recent surge in the yen and a continued unwinding of the yen-funded carry trade, the CNBC article noted.
Carry Trade Explained
Carry trades involve borrowing in a currency with low interest rates and investing in higher-yielding assets. This strategy has been popular due to expectations that the Japanese yen will remain weak and Japanese interest rates will remain low. However, recent interest rate hikes from the Bank of Japan have strengthened the yen, contributing to a global market sell-off.
Outlook for Yen Carry Trade Unwinding
The yen carry trade began to unwind earlier this month as Bank of Japan rate hikes bolstered the currency. Although some stabilization has occurred, strategists, including Yu, believe the unwinding process is ongoing.
Given the above-mentioned facts, the bearish trend in the greenback is likely to continue, at least in the near term.
ETFs to Buy for Weakening Dollar
So, investors looking to play the weakening U.S. dollar could consider these exchange-traded funds (ETFs):
Inverse Dollar Fund
Needless to say, if the dollar is falling, a short position on the currency would result in negative returns. Invesco DB US Dollar Index Bearish Fund (UDN - Free Report) should thus be avoided.
Commodities: Gold
The decline in the U.S. dollar is good for raw materials and commodities as these are priced in the U.S. dollar. SPDR Gold Shares (GLD - Free Report) has gained 21.7% this year due to a sudden dollar weakness and geopolitical tensions.
Large-Cap ETFs
Since large-cap stocks have greater foreign exposure, the weakening dollar is positive for this capitalization. BofA Global Research once estimated that every 10% drop in the U.S. dollar translates into about a 3% boost to S&P earnings. SPDR S&P 500 ETF Trust (SPY - Free Report) should thus be closely watched.
ETFs to Sell for Weakening Dollar
U.S. Dollar
The dollar weakness can surely be played with UUP and WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU - Free Report) .
Small-Cap ETFs
Since small caps are closely tied to the U.S. economy and do not get affected by a rising dollar due to their limited foreign exposure, iShares Russell 2000 ETF (IWM - Free Report) could be a weak pick now, in this context.
Dollar-Denominated Bond ETFs
Investors seeking EM exposure amid a falling dollar should not consider dollar-denominated EM bond ETFs. These funds invest in sovereign debt from a variety of emerging nations via U.S. dollar-denominated securities. Notably, the debt route is less risky than equities. Moreover, most emerging markets have low debt levels compared to the developed countries.
SPDR Bloomberg Emerging Markets USD Bond ETF (EMHC - Free Report) is one such ETF. The underlying Bloomberg Emerging USD Bond Core Index measures the performance of fixed-rate US dollar-denominated debt issued by sovereign and quasi-sovereign emerging market issuers. The fund yields 5.39% annually and is up 2.7% this year.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
U.S. Dollar to Drop Ahead? ETFs to Gain/Lose
The U.S. greenback has seen a stellar run so far this year, with Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) logging a 2.8% return. However, things may go downhill in the coming days, with the Fed expected to cut rates in September.
Market Forecast: Dollar Weakening Against Yen
Geoffrey Yu, senior EMEA market strategist at BNY, shared his outlook on the U.S. dollar's performance against major currencies, telling CNBC that the dollar may continue to weaken against the Japanese yen through the end of the year. This is especially true given that the Bank of Japan is on a policy tightening mode, which could strengthen the yen against the greenback.
On Wednesday, the dollar was trading 0.6% higher at 146.09 yen around 11:50 AM London time. This followed a dip below the significant 145-yen level for the first time since Jan. 6, indicating a recent surge in the yen and a continued unwinding of the yen-funded carry trade, the CNBC article noted.
Carry Trade Explained
Carry trades involve borrowing in a currency with low interest rates and investing in higher-yielding assets. This strategy has been popular due to expectations that the Japanese yen will remain weak and Japanese interest rates will remain low. However, recent interest rate hikes from the Bank of Japan have strengthened the yen, contributing to a global market sell-off.
Outlook for Yen Carry Trade Unwinding
The yen carry trade began to unwind earlier this month as Bank of Japan rate hikes bolstered the currency. Although some stabilization has occurred, strategists, including Yu, believe the unwinding process is ongoing.
Given the above-mentioned facts, the bearish trend in the greenback is likely to continue, at least in the near term.
ETFs to Buy for Weakening Dollar
So, investors looking to play the weakening U.S. dollar could consider these exchange-traded funds (ETFs):
Inverse Dollar Fund
Needless to say, if the dollar is falling, a short position on the currency would result in negative returns. Invesco DB US Dollar Index Bearish Fund (UDN - Free Report) should thus be avoided.
Commodities: Gold
The decline in the U.S. dollar is good for raw materials and commodities as these are priced in the U.S. dollar. SPDR Gold Shares (GLD - Free Report) has gained 21.7% this year due to a sudden dollar weakness and geopolitical tensions.
Large-Cap ETFs
Since large-cap stocks have greater foreign exposure, the weakening dollar is positive for this capitalization. BofA Global Research once estimated that every 10% drop in the U.S. dollar translates into about a 3% boost to S&P earnings. SPDR S&P 500 ETF Trust (SPY - Free Report) should thus be closely watched.
ETFs to Sell for Weakening Dollar
U.S. Dollar
The dollar weakness can surely be played with UUP and WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU - Free Report) .
Small-Cap ETFs
Since small caps are closely tied to the U.S. economy and do not get affected by a rising dollar due to their limited foreign exposure, iShares Russell 2000 ETF (IWM - Free Report) could be a weak pick now, in this context.
Dollar-Denominated Bond ETFs
Investors seeking EM exposure amid a falling dollar should not consider dollar-denominated EM bond ETFs. These funds invest in sovereign debt from a variety of emerging nations via U.S. dollar-denominated securities. Notably, the debt route is less risky than equities. Moreover, most emerging markets have low debt levels compared to the developed countries.
SPDR Bloomberg Emerging Markets USD Bond ETF (EMHC - Free Report) is one such ETF. The underlying Bloomberg Emerging USD Bond Core Index measures the performance of fixed-rate US dollar-denominated debt issued by sovereign and quasi-sovereign emerging market issuers. The fund yields 5.39% annually and is up 2.7% this year.