How To Short The U.S. Dollar With ETFs

dollar etfThe mood in the market has changed abruptly following the conclusion of the FOMC meeting. Ben Bernanke surprised the market with a no-taper decision, keeping the current bond-buying program intact. Investors were looking for a reduction of at least $10 billion in the Fed’s $85 billion per month in purchases.

No Tapering 

Though the delay in tapering sparked investors’ confidence across the riskier assets sending the broad equity and bond markets higher, it dampened the demand for safe haven currencies. As such, the U.S. dollar (USD), the shining currency this year, tumbled the most in seven months against a basket of major currencies in Asia (read: 3 ETF Winners from the ‘No Taper’ Shocker).

The FOMC said that the cut down in the bond buying would not happen until and unless the economy shows more evidence of solid growth. Instead, the Fed lowered the GDP growth outlook to 2–2.3% from 2.3–2.6% for this year, citing concerns relating to tight fiscal policy and higher mortgage rates.

Further, the Fed reiterated that the interest rates would stay near zero level and not be increase until the unemployment rate falls below 6.5% and inflation exceeds 2.5%.

Other Factors

The bearish trend in the greenback is expected to continue at least in the near term given the lower economic growth outlook and the improving global conditions.

China, as seen in nine of the past 10 quarters, is seemingly bottoming out. The European economy is on the verge of recovery thanks to upbeat data, less concerns on debt levels and a firmer currency. Further, the emerging markets are showing an impressive turnaround of late (read: Emerging Market ETFs Surge on Solid China Data).

Given the change in the market fundamentals, investors could think about shorting U.S. dollars to take advantage of the growing equity markets and the broad commodities strength.

How to Play?

While futures or short-currency approach are possibilities, there are a two lower-risk short USD ETF options which may make more sense to many investors. That is because these short USD ETFs prevent investors from losing more than their initial investment and are also cheaper than direct shorting currency or utilization of futures contracts.

So investors seeking to make a short play on USD could consider any of the following ETFs given the bearish outlook for the currency:

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