Is It Time to Stick a Fork in the Dollar and Related ETFs?

The United States dollar is currently so weak that people are beginning to ask if it’ll ever claw its way back. While the role of the dollar is sorted out, ETFs can help you play its present and its future.

Is the world finally losing its appetite for the U.S. dollar? Michael Schuman for Time asks the question. There are signs that we should be concerned:

• The price of gold has catapulted to new highs and the International Monetary Fund (IMF) is selling 200 metric tons of gold to India’s central bank for $6.7 billion.
• Around the world, U.S. dollars accounted for 37% of new reserves in central banks.

The worst recession since the 1930s may almost be behind us and the beaten-down financial sector seems to be mending. Can the dollar rise from the ashes like a phoenix? Some say perhaps not. In a decade, says one historian, the world won’t be so dollar-denominated. But whether that spells doom is another question altogether.

The U.S. dollar is not going to disappear. But if the talk becomes reality, the greenback could take a hit. Central bankers are the currency market’s buyer of last resort, and thus the private sector’s view of the dollar’s value and stability can be heavily influenced by what they do.

While the dollar’s role going forward is sorted out, ETF investors have a number of options. PowerShares long/short dollar ETFs can help you play a weak or strong dollar, while their currency harvest fund allows you to play the carry trade.

• PowerShares DB US Dollar Up (NYSEArca: UUP): down 7.5% year-to-date

• PowerShares DB US Dollar Bearish (NYSEArca: UDN): up 8.2% year-to-date

• PowerShares Group 10 Carry Trade (NYSEArca: DBV): up 20.3% year-to-date

Comments

[Bob Mayo:]

As of today UUP is still above its 2008 low. I don't understand those that say that is amazingly weak. Isn't it just returning to where it was before the panicked flight-to-quality happened?

Nov 13 02:36 AM