The US dollar is gaining momentum in the global financial markets due to quantitative tightening.  Dollar ETF yields are cruising.  (Maekyung DB)
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‘Money move’ in dollars… Should I include a dollar ETF?

The US dollar is gaining momentum in the global financial markets due to quantitative tightening. Dollar ETF yields are cruising. (Maekyung DB)

The dollar’s value is showing super strength as volatility in the global financial market has increased due to the successive ‘big steps’ of the US (a 0.05% point increase in the base interest rate). As a result, exchange-traded funds (ETFs) that invest in the dollar are prominent in the bear market.

According to the Korea Exchange, the average return of 6 dollar ETFs (excluding Inverse) listed in Korea from February 24 to May 12, when the won-dollar exchange rate broke through 1,200 won per dollar, was about 8%. By product, KODEX, KOSEF, and TIGER US dollar futures leverage showed a return of about 12%. It was followed by KODEX US Dollar Futures (6%), KOSEF US Dollar Futures (6%), and KBSTAR KRX300 US Dollar Futures Mixed (3%). This is a significant improvement compared to the KOSPI’s slump during this period.

Dollar exchange-traded securities (ETNs) are also doing well. During the same period, Shinhan Investment’s leveraged US dollar futures and dollar index futures (H) showed yields of 12% and 7%, respectively. Products listed on the US stock exchange also performed well. From February 23 to May 11, ‘Invesco DB US Dollar Index Bullish Fund (UUP)’ and ‘Wizdom Tree Bloomberg US Dollar Bullish Fund (USDU)’ showed returns of 8% and 7%, respectively.

The strength of dollar-related commodities is believed to be due to a surge in investment demand for the safe-haven dollar as the US Federal Reserve (Fed) raised its benchmark interest rate and then started quantitative tightening in earnest. On May 12, in the Seoul foreign exchange market, the won-dollar exchange rate broke through 1290 won per dollar at one point during the day. Based on the closing price on that day, it rose to 1288.6 won, close to the level of July 14, 2009 (1293 won), which was in the global financial crisis. If the won-dollar exchange rate exceeds 1,300 won, it will be the first time in 10 years and 10 months since July 2009. In addition, the dollar index, which shows the value of the dollar against the currencies of six major countries, recently climbed to the 104th level, breaking the high since December 2002.

Amin Kwon, an analyst at NH Investment & Securities Co., said, “The dollar’s ​​strength is fueled by a combination of concerns about a recession in the U.S. and the weakness of other key currencies, such as the yen, which were classified as safe assets. This will prevail for the time being.”

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