3 ETFs For Surprise Drop In The Dollar

March 28, 2017

One of the most prominent consensus calls heading into 2017 was that the U.S. dollar would head higher during the year.

Wall Street analysts were nearly unanimous in their expectation that a Donald Trump presidency would spell only good news for the greenback thanks to stronger growth expectations and higher interest rates.

As is often the case, the consensus expectation has proven to be off the mark, at least during the first part of the year. After peaking at a 14-year high late last year, the U.S. Dollar Index has steadily dropped during the first quarter of 2017, and was last trading down 3% year-to-date.

Last week's failure by Republicans to pass a health care bill through the House of Representatives was the latest setback for the buck, which had rallied four-straight years, measured by the popular U.S. Dollar Index.

Under The Dollar Index Hood

That index is heavily influenced by the euro-dollar (EUR/USD) foreign exchange rate, which has a 57.6% weighting in the index basket. That's followed by the dollar-yen (USD/JPY) at 13.6%; the pound-dollar (GBP/USD) at 11.9%; and a few others with smaller weights.

 

Currency Weight
Euro (EUR) 57.6%
Japanese Yen (JPY) 13.6%
British Pound (GBP) 11.9%
Canadian Dollar (CAD) 9.1%
Swedish Krona (SEK) 4.2%
Swiss Franc (CHF) 3.5%

 

Of course, there are plenty of other currency pairs outside of those in the U.S. Dollar Index basket. The Mexican peso, for example, is up nearly 10% against the greenback after falling to a record low around the time of Trump's inauguration in January.

It could be that the peso is rallying simply because it fell too far and too fast. Or it could be that Trump's policies haven't proven to be as detrimental to the Mexican economy as feared. In any case, the point is that currencies across the board are climbing against the dollar, an unexpected development that investors should pay attention to.

Here are three ETFs that are poised to benefit if the dollar continues to slide:

 

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