How to Profit from the Rising Value of the US Dollar

The US dollar remains the world’s single most influential currency, with this greenback on one side of 88% of all global currency trades.

This should come as no surprise, of course, with the dollar widely considered to be the world’s benchmark currency and one that remains incredibly popular across the globe.

In this post, we’ll look at the strength of the USD while asking how traders can profit when the asset rises in value.

Appraising the Strength of the US Dollar

The USD has endured a challenging 18 months, with declining demand and quantitative easing measures imposed by the Federal Reserve driving its value down over an extended period of time.

This looked like it would worsen in 2021, as an increased rate of inflation beckoned and the threat of an even lower base interest rate loomed large.

However, the dollar has since rebounded through Q3, closing in on its highest levels for the year against an entire basket of other major currencies.

Interestingly, this was underpinned by investors’ worries about global growth and performance elsewhere rather than cheer concerning the USD, with the greenback’s innate strength and popularity likely to sustain it as economic volatility continues to rampage across the globe.

How to Profit From the Rise of the US Dollar

For those who are experienced in the art of forex trading, there’s a tendency to look to profit on the rise of the USD and cash in on its sustained growth.

Certainly, the dollar is fulfilling its longstanding role as the world’s primary safe-haven currency, with this offering a viable, longer-term investment for swing or position traders in the forex market.

But how else can you profit from the rising USD? Well, exchange-traded funds (ETFs) offer investors broad exposure to a broad range of assets, so targeting those that are focused on US shares could offer value as the greenback underpins a wider economic recovery stateside.

Take the iShares Russell 2000 ETF (IWM), for example, which offers investors exposure to nearly 2,000 small US companies and enables them to potentially reap the rewards of a rising-dollar trend.

This is particularly true in the case of ETFs that target smaller firms, which typically generate substantially less of their sales from overseas clients when compared with larger corporations.

The State Street S&P Retail ETF (XRT) is another similar and viable asset, and one that offers exposure to 99 American-based retailers such as Five Below, Children’s Place and Wal-Mart Stores.

Not only will this also help you to capitalise fully on the rising dollar trend, but there’s also a limited window of opportunity to cash in as the festive period approaches. Certainly, the companies included in this ETF are likely to see revenues and share prices hike in the coming quarter, creating a short-term chance to profit for investors.

Written by Eric

37-year-old who enjoys ferret racing, binge-watching boxed sets and praying. He is exciting and entertaining, but can also be very boring and a bit grumpy.