Positioning for Dollar Strength: Which ETFs Stand to Win in 2025

The U.S. dollar is experiencing its strongest performance in nearly a decade, with the Bloomberg Dollar Spot Index surging over 7% this year—its best annual showing since 2015. As we head into 2025, this momentum shows no signs of slowing. Incoming policy shifts centered on economic growth, inflation management, and trade optimization are expected to provide additional tailwinds for the greenback, creating compelling opportunities for investors through strategically chosen exchange-traded funds.

Why the Dollar Is on the Rise

Multiple converging factors are fueling dollar strength. Trade policy adjustments, tax reforms, and deregulation initiatives are anticipated to accelerate domestic economic expansion and inflation, constraining the Federal Reserve’s flexibility to lower rates aggressively—a structural support for the currency. Meanwhile, deficit spending forecasts have lifted U.S. Treasury yields to attractive levels, further anchoring dollar demand from global capital seeking higher returns.

The Fed’s measured approach to rate cuts has already bolstered the greenback. Analysts increasingly expect 2025 to deliver additional gains as global growth stabilizes and capital rotation favors dollar-denominated assets.

Market Implications: Beyond Currency Moves

A robust U.S. dollar delivers tangible economic benefits. Energy and commodity imports become cheaper, directly compressing industrial costs and expanding corporate margins. Domestically-focused enterprises—particularly small-cap firms with minimal international revenue exposure—benefit disproportionately. Meanwhile, a strong dollar attracts international investors seeking greenback-denominated returns, creating a positive feedback loop for asset markets.

For investors concerned about international holdings, currency-hedged vehicles eliminate forex volatility while maintaining exposure to global equity markets.

Strategic ETF Plays on Dollar Strength

Direct Dollar Exposure: Invesco DB US Dollar Index Bullish Fund (UUP)

This ETF serves as the primary vehicle for capturing broad-based dollar appreciation. UUP tracks the Deutsche Bank Long USD Currency Portfolio Index, benchmarking the greenback against a basket of six major foreign currencies. The fund’s allocation reflects its strategic positioning: roughly 57.6% exposure to the euro and 25.5% combined allocation to Japanese yen and British pound—the three most significant drivers of the index.

With $420 million in assets under management and solid daily trading volume averaging 773,000 shares, UUP offers sufficient liquidity for most institutional and retail investors. Annual fees of 78 basis points are competitive for active currency positioning. The fund also captures interest income from underlying U.S. Treasury holdings, providing modest yield enhancement.

Alternative Dollar Strategy: WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU)

For investors seeking a complementary approach, USDU tracks the Bloomberg Dollar Total Return Index, offering direct dollar exposure through a different methodological lens. This fund has carved out a distinct niche by demonstrating strong inverse correlations to international equity and fixed-income portfolios—making it particularly valuable for hedging global portfolio risk.

USDU manages $248.7 million in assets and trades with adequate daily volume around 213,000 shares. The fee structure of 50 basis points is more economical than UUP, benefiting cost-conscious investors.

Domestic Exposure Play: iShares Russell 2000 ETF (IWM)

Small-cap equities represent an indirect but potent way to capitalize on dollar strength. These companies derive minimal revenues internationally, rendering them naturally hedged to U.S. currency strength. IWM provides diversified exposure to 1,976 small-cap stocks tracking the Russell 2000 Index.

The fund’s scale is impressive: $75 billion in AUM and 24.4 million shares in average daily volume—the most actively traded small-cap vehicle available. At 19 basis points annually, IWM’s cost structure is remarkably efficient. The combination of index quality and accessibility makes it a preferred gateway to small-cap dollar exposure.

International Equity with Currency Protection: iShares Currency Hedged MSCI EAFE ETF (HEFA)

As the dollar appreciates, currency-hedged strategies gain strategic importance. HEFA provides exposure to developed market equities across Europe, Australia, and the Far East while systematically eliminating currency fluctuation risk through hedging to the dollar.

By tracking the MSCI EAFE 100% Hedged to USD Index, HEFA allows investors to isolate pure equity market performance divorced from forex dynamics. The fund’s $5.4 billion in assets and solid trading volume of 633,000 daily shares provide excellent liquidity. Annual fees of 35 basis points represent competitive pricing for a hedged strategy.

Looking Ahead to 2025

The confluence of policy stimulus, inflation expectations, and Fed rate trajectory creates a durable environment for continued dollar appreciation. Investors can access this trend through direct currency vehicles like UUP and USDU, capitalize on domestic small-cap strength through IWM, or maintain international diversification while protecting against currency headwinds via HEFA.

The optimal strategy depends on individual portfolio construction and risk tolerance, but positioning across multiple dollar-benefiting ETFs offers a balanced approach to capturing 2025’s anticipated trends.