Dollar Slides to Near Four-Year Low: ETF Strategies to Play

A key gauge of the U.S. dollar dropped to its weakest level in almost four years, thanks to a growing yen and mounting concerns over U.S. policy stability, per Bloomberg, as quoted on Yahoo Finance.

Policy Uncertainty Weighs on the Greenback

The U.S. dollar’s weakness reflects growing investor unease following erratic Washington policymaking, including President Donald Trump’s threats to take over Greenland. Longer-term pressures include concerns over Federal Reserve independence, a widening budget deficit, and deepening political polarization, per the above-mentioned Bloomberg article.

Note that disagreements between Republicans and Democrats over Homeland Security funding have raised fears of another government shutdown, as quoted on CNBC. The risk of a partial U.S. government shutdown is rising, as Democrats threaten to block a spending package unless funding for the Department of Homeland Security is removed.

Yen Strength Fuels Speculation of Intervention

The latest decline in the dollar follows signs of U.S. support for the beleaguered yen, reviving speculation about coordinated currency intervention. Invesco CurrencyShares Japanese Yen Trust FXY gained 3.8% over the past week (as of Jan. 27, 2026).

Speculation about joint U.S.-Japan currency intervention has been driving the foreign exchange market, with the yen strengthening significantly against the dollar in late January 2026. Invesco DB US Dollar Index Bullish Fund UUP has lost 2.6% over the past week (as of Jan. 27, 2026). 

Earlier this month, the yen had neared 160 per dollar — its weakest level since 2024 — before rebounding on intervention speculation. At the time of writing on Jan. 28, 2026, the yen is trading at 152.64 per dollar. The euro, too, climbed to its strongest level since 2021, while the pound rose to the highest since July, per the same Bloomberg article.

Other Factors Playing Against Dollar Strength

BRICS economies have been taking an important step toward de-dollarization. The greenback’s share in global reserves declined lately.The balance of greenbacks in international reserves declined to 56.3% between April and June 2025, per the International Monetary Fund, as mentioned on Bloomberg. That’s a decline of about 1.5 percentage points from the first quarter and the lowest level in three decades.

ETF Investment Strategies to Follow

Against this backdrop, investors may consider the following ETF strategies:

Tap Inverse Dollar ETF

Needless to say, if the dollar is falling, a short position on the currency would result in positive returns. Invesco DB US Dollar Index Bearish Fund UDN should thus be tapped.

Focus on Real Assets

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 has gained about 19.5% this year (as of Jan. 27, 2026) due to a sudden dollar weakness and the rising geopolitical crisis. The broader commodities ETF, Invesco DB Commodity Index Tracking Fund DBC, has also risen about 10% year to date.

Opportunities in Emerging Markets

De-dollarization can create opportunities for investors in emerging markets, as countries that were previously reliant on the U.S. dollar may develop stronger local currencies and financial systems. This could lead to increased investment in these countries. Pacer Emerging Markets Cash Cows 100 ETF ECOW is up about 8.5% so far this year.

Time for Large Caps?

Since large-cap stocks have greater foreign exposure, the weakening dollar is positive for this capitalization. SPDR S&P 500 ETF Trust SPY should thus be closely watched for gains.

Should You Embrace Opportunities in Digital Currencies?

De-dollarization can create new opportunities in digital currencies. Investors should be open to exploring these options, but with great caution, as it is a very volatile area. Bitcoin has gained 1.7% so far this year (as of Jan. 27, 2026).  Global X Blockchain ETF BKCH, which deals with the mining of cryptocurrencies, is now in vogue. BKCH ETF is up 15.5% year to date.

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

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