Betting on a Weaker Dollar? ETFs to Consider

The U.S. dollar is witnessing persistent downward pressure in 2025. Fed interest rate cuts, as well as economic instability, have increased investor anxiety and are weighing on the greenback’s outlook.

Both technical and fundamental factors are working against the greenback. According to TradingView, the U.S. Dollar Index (DXY) has fallen 1.46% over the past six months and 8.50% year to date. The index has recorded an all-time decline of 17.18%.

Factors Behind Greenback’s Decline

Rising concerns over a potential AI bubble and stretched equity valuations are likely making investors shift away from U.S. equities and securities, adding further pressure on the greenback. Additionally, hedging activity has been a major factor behind the dollar’s weakness this year.

According to Reuters, if global sentiment toward the greenback and the U.S. economy deteriorates, investors are likely to maintain elevated hedge ratios, which would cap any meaningful upside for the dollar.

Per the abovementioned Reuters article, President Trump’s policy framework emphasizes a weaker dollar, aiming to enhance U.S. competitiveness globally. A weaker exchange rate is central to reviving U.S. manufacturing, boosting exports and narrowing the nation’s sizable trade deficit.

Dollar Declines on Rate-Cut Bets

The value of the greenback is closely related to the Fed’s monetary policies. Its value tends to move inversely with the Fed's interest rate adjustments. Interest rate cuts by the Fed make the dollar less attractive to foreign investors, as these weaken it.

According to the CME FedWatch tool, markets are anticipating a 53.6% likelihood of another interest rate cut in December. A Reuters poll showed that 80% of economists expect the Fed to trim rates by 25 basis points next month to support the cooling labor market, marking a slight shift from prior expectations, as per a Reuters article.

ETFs to Consider

With sentiment often driving currency markets more than traditional supply-demand fundamentals, the need for investors to diversify and hedge their portfolios from a weakening greenback is necessary.

Investors can hedge themselves against the likelihood of the greenback depreciating and diversify their portfolios by increasing their exposure to the following funds.

WisdomTree Emerging Currency Strategy Fund CEW

WisdomTree Emerging Currency Strategy Fund employs an active strategy and provides exposure to various emerging currencies worldwide relative to the U.S. dollar, making it a quality fund to invest in.

The fund has exposure to the currencies of Colombia, Poland, Chile, Brazil, Malaysia and South Africa which comprise the top six countries, among others. CEW has amassed an asset base of $11.4 million and charges an annual fee of 0.55%.

WisdomTree Emerging Currency Strategy Fund has gained 5.39% over the past year and 10.94% year to date.

Invesco DB U.S. Dollar Index Bearish Fund UDN

Invesco DB U.S. Dollar Index Bearish Fund offers exposure to a basket of currencies relative to the greenback, rising when the dollar depreciates. UDN is an appropriate option for investors with a bearish outlook on the U.S. dollar.

Invesco DB U.S. Dollar Index Bearish Fund has gained 4.63% over the past year and 12.37% year to date. UDN has amassed an asset base of $147 million and charges an annual fee of 0.78%.

Gold ETFs

A weaker U.S. dollar generally leads to higher demand for gold, pushing its price upward as it becomes more affordable for buyers holding other currencies. Gold price has risen 6.33% over the past five days and 61.20% year to date. Strong fundamental indicators could extend gold’s gains into 2026, boosting the case for increased portfolio allocation (Read: ETFs to Consider as Gold Jumps to 2-Week High)

Investors can consider SPDR Gold Shares GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM and iShares Gold Trust Micro IAUM to increase their exposure to the yellow metal.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research