UUP Vs. The Herd: Contrarian Dollar ETFs In Focus As Sentiment Hits 20-Year Low

Wall Street’s aversion to the dollar has reached its highest in two decades. Bank of America’s June Global Fund Managers Survey indicates that 37% of investors are underweight on the U.S. dollar, the most bearish skew in two years. But this unusual unanimity is flashing something interesting for ETF investors: a contrarian opportunity.

Enter dollar-bullish ETFs, namely, the Invesco DB US Dollar Index Bullish Fund UUP, WisdomTree Bloomberg U.S. Dollar Bullish Fund USDU, and a family of currency-hedged equity ETFs such as iShares Currency Hedged MSCI EAFE HEFA and WisdomTree Japan Hedged Equity DXJ.

These are not merely tactical dollar-strength plays; they might also be the wiser alternative to betting on other world currencies in an era of policy pivots, trade shocks, and geopolitical hairpin turns.

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Why Betting Against The Dollar Might Backfire

The U.S. Dollar Index, which UUP follows, has dropped around 12% since Donald Trump‘s inauguration on Jan 20. Investors struggle with growing deficits, bewildering tariff messages, and a Fed that seems cornered. On paper, that seems like a good enough setup for wagering on other currencies.

But that is not really the case.

The issue? The alternatives are not exactly poster children for stability.

The eurozone is stuck with anemic growth, recalcitrant inflation, and political weakness from Brussels to Berlin.

The Japanese yen is anchored to ultra-loose monetary policy and a hawkish Fed–BoJ divergence.

The Chinese yuan continues to be politically managed and vulnerable to a shaky property market.

Emerging market currencies? Illiquid, volatile, and sharply responsive to risk-off shocks.

Short version: Sure, sentiment might be bearish on the dollar, but there’s no neat “long” substitute. And in FX, betting on currencies other than the dollar can rapidly go off the rails when global risk rises.

UUP, USDU: Tactical Bets With Past Tailwinds

Invesco’s UUP and WisdomTree’s USDU offer liquid, directional exposure to a dollar recovery.

UUP tracks the dollar against a basket of six developed-market currencies, with the euro weighing heavily in the mix.

USDU is a broader one, with a mix of emerging markets and more diversified FX. It is a more diversified bet, but dollar-positive nonetheless.

Both the funds are off this year, tracking the decline of the dollar, and that’s precisely what could make them attractive. In 2005, when sentiment had been equally bearish, the dollar rallied 14% over several months. That rebound caught a vast majority of short-dollar positions by surprise, and paid off for ETF investors who entered early.

For The Cautious: Hedge Your International Equity Exposure

If jumping headfirst into long-dollar ETFs seems reckless, investors can still be defensive through currency-hedged international ETFs such as HEFA (Europe, Australasia, Far East equities, currency-hedged), DXJ (Japan equities, JPY-hedged), and WisdomTree Europe Hedged Equity Fund HEDJ (Eurozone exporters, euro-hedged).

These funds allow investors to hold international diversification without being clobbered if the dollar does rally.

Positioning Against The Herd

When most investors are scrambling to discover the next hard currency, the road of least resistance might be to remain humble in the dollar. For it is during a geopolitical environment characterized by tariff brinksmanship, Middle East turmoil, and election-year uncertainty that stability, no matter how flawed, can become a valuable asset.

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