5 ETFs To Profit From A Dollar Rebound

After weak trading in the first quarter, the U.S. dollar resumed its strength lately spurred by a rise in bond yields. Notably, the 10-year yield jumped to above 3%, marking the highest level since early 2014 while the Bloomberg Dollar Spot Index increased to the highest in almost 15 weeks.

The yield curve is steepening after a long period of flattening, easing fears of a future downturn for the U.S. economy and sparking a rally in the greenback. This is because a flattening curve is commonly seen as a warning sign for a potential economic downturn.

Additionally, de-escalation of trade tensions as well as renewed expectation of a stronger economy is supporting the dollar. Tax cuts and increased fiscal spending has been the major catalyst boosting economic growth and thus the dollar. The latest round of upbeat data including consumer confidence and new home sales has also bolstered the case for the economy. A healthy economy is expected to pull in more capital into the country and lead to appreciation of the U.S. dollar.

Further, inflationary expectations buoyed by a spike in commodity prices are sparking speculation of four rate hikes this year. Per the latest CME's FedWatch tracking tool, the market is projecting 50% chances of a total of four interest rate hikes this year. This compares to 33% probability a month ago and less than 40% late last week. The increased expectation for rate hikes has given a boost to the dollar.

Given the encouraging fundamentals, the bullish trend in the greenback is expected to continue at least for the short term. Investors seeking to make a play on the U.S. dollar could consider any of the following ETFs:

PowerShares DB US Dollar Bullish Fund (UUP - Free Report)

UUP is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, UUP allocates nearly 57.6% in euro and 25.5% collectively in the Japanese yen and British pound. The fund has so far managed an asset base of $520.3 million while sees an average daily volume of around 1.1 million shares. It charges 80 bps in annual fees and added 1.6% over the past week. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

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