Dollar ETFs Spike on Trump Victory, Await His Moves

While bonds have dropped, the U.S. dollar has been a winner since Donald Trump’s election this week. 

The U.S. Dollar Index jumped 1.6% to its highest level since July on Wednesday, once it became apparent that Trump would prevail.

The dollar rose for the same reason bonds sold off. Many investors believe that a Trump administration could lead to higher inflation, which in turn, could lead to fewer Fed rate cuts. 

All else equal, higher interest rates tend to be supportive of the dollar versus rival currencies. 

Trump’s plans to raise tariffs could also significantly reduce the demand for imports, and consequently, the demand for foreign currencies—which, again, is dollar positive. 

Still, despite surging on Wednesday, the dollar is well within its trading range. The Dollar Index has been fluctuating between 100 and 105 over the past two years.

Perhaps Trump’s win will eventually cause a breakout in the greenback, but traders may be hesitant to drive big moves in the currency until Trump officially enters office and starts enacting his economic agenda.

Here are some of the ETFs that could be impacted by large shifts in the value of the dollar:

Gold ETFs

The yellow metal often moves inversely to the dollar. Gold funds, such as the SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU), could be hit if the buck rises.  

Ahead of the election, gold neared $2,800/oz for the first time ever. The day after Trump won, prices shed 3%.  

Currency ETFs

The most direct impact from currency moves will obviously be on currency-tracking ETFs. There are a handful of such ETFs with more than $100 million in assets.

The Invesco CurrencyShares Japanese Yen Trust (FXY) is the largest, followed by the Invesco DB US Dollar Index Bullish Fund (UUP), the WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU), the Invesco CurrencyShares Euro Trust (FXE) and the Invesco CurrencyShares Swiss Franc Trust (FXF). 

Currency-Hedged ETFs

Currency hedged ETFs hedge their international currency exposure, insulating investors from currency fluctuations. If the dollar climbs, ETFs, such as the WisdomTree Europe Hedged Equity Fund (HEDJ) and the WisdomTree Japan Hedged Equity Fund (DXJ), will outperform their plain-vanilla counterparts.