Before the Great Recession, everyone thought the dollars days were numbered. The Euro and various emerging market currencies were all the rage and the greenback continued to sink versus these other currencies. Funds like the WisdomTree Emerging Currency Strategy (NYSE:CEW) sprang up and attracted big inflows.

Well, investors may not want to give up on the dollar just yet.

Despite a potentially sticky long-term situation, the dollar is quickly emerging as one of the biggest stars in the New Year. And given some pretty bullish factors, those gains could continue. For investors, the time to bet on the greenback could be now.

Highest Gain In Months

While once potentially “left for dead” as the premier currency, Uncle Sam is having the last laugh. The U.S. dollar recently hit fresh highs as well as saw its biggest one day gain in almost five months against a basket of other developed market currencies.

The reason? The U.S. economy is rocking once again as recent positive data is lending support to the dollar.

Factory activity in the U.S. recently rose to a 2 ½ year high and the number of unemployed Americans continues to drop. Meanwhile, both commercial and housing construction starts have been rising and the dour U.S consumer has finally begun to spend. The latest Consumer Confidence Index numbers climbed to 78.1 in December from a revised 72 in November. That’s the best year end number since 2007. All in all, these positive suggest that the world's largest economy was finally on stable footing.

These positive factors have helped the greenback pop over the last few quarters. And the good times could still carry on for the currency.

The positives in the U.S. economy should help the Fed begin winding down its quantitative easing programs throughout the year. That’s should help boost U.S. treasuries and ultimately, the U.S. balance sheet. A stronger balance sheet supports a strong currency. Also boosting that balance sheet is the recent bipartisan budget deal in Washington that calls for small spending decreases. Adding in the continued gains for the U.S. economy and you have recipe for a higher greenback in 2014.

According to Bloomberg, analysts expect the dollar to gain nearly 8% against the euro by 2015. Similarly, the Japanese yen will fall against the dollar buy roughly the same amount.

A Greenback Portfolio

With the dollar expected to rise throughout 2014, investors may want to position themselves accordingly. The most popular and easiest way to do that is through the PowerShares DB US Dollar Index Bullish (NYSE:UUP).

The UUP tracks the value of the U.S. dollar relative to a basket of the six major world currencies. These include the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The ETF accomplishes this by spreading it’s nearly $691 million in assets by going long the dollar via futures contracts on the currencies. So far, UUP has been roughly flat since inception, but if the dollar continues to rise, the fund should do well. Expenses for UUP run 0.80% and investors should get a K-1 statement come tax time.

Another option, could be the new WisdomTree Bloomberg USD Bullish (NASDAQ:USDU). The kicker for this new fund is that in addition to the currencies in UUP, the WisdomTree (NASDAQ:WETF) fund adds exposure to the Mexican Peso, Australian dollar, South Korean Won, Chinese Yuan and Brazilian Real.

Another option could be to actually short various currencies versus the dollar. The ProShares UltraShort Euro (NYSE:EUO) measures twice the decline of the euro versus the U.S. dollar and makes an easy play for the greenbacks uptrend. Likewise, investors can short funds like CurrencyShares Canadian Dollar Trust (NYSE:FXC) and CurrencyShares Australian Dollar Trust (NYSE:FXA). Both are highly liquid and borrowing shares is relatively easy at most brokerages.

Finally, a rising dollar is a boon to those nations with export driven economies- such as Germany and Japan. As the dollar rises, their goods essentially get cheaper in real terms. That makes funds like the iShares MSCI Germany (NYSE:EWG) and iShares MSCI Japan (NYSE:EWJ) big buys. Both funds track some of the world’s largest multinational exporters like Siemens (NYSE:SI) and Toyota Motor (NYSE:TM).

The Bottom Line

After years of declines, the U.S. dollar has regained its mojo. More importantly, those gains should continue throughout the New Year as various factors continue to push it upwards. For investors, the time is still right to bet on the greenback. The previous picks- along with the actively managed PIMCO Foreign Currency Strategy ETF (NASDAQ:FORX) -make ideal selections to play the trend.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Related Articles
  1. Personal Finance

    7 Facts You Didn't Know About The Greenback

    There's more to that $10 bill in your pocket than you think - read on for some interesting facts about U.S. currency.
  2. Budgeting

    Squeeze A Greenback Out Of Your Latte

    Stick to your budget every day with these 15 simple tips.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares US Basic Materials

    Learn about the iShares US Basic Materials exchange-traded fund, which invests in the equities of chemicals, metals and industrial gas companies.
  4. Mutual Funds & ETFs

    ETF Analysis: Ultra Oil & Gas

    Find out more about the ProShares Ultra Oil & Gas exchange-traded fund, the characteristics of the ETF and the suitability and recommendations for the fund.
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Commodity Tracking

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  6. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  7. Mutual Funds & ETFs

    Comparing ETFs Vs. Mutual Funds For Tax Efficiency

    Explore a comparison of mutual funds and exchange-traded funds, or ETFs, and learn what makes ETFs a significantly more tax-efficient investment.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Small-Cap Value

    Find out about the Vanguard Small-Cap Value ETF, and explore detailed analysis of its characteristics, suitability, recommendations and historical statistics.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Corp Bd

    Learn about the Vanguard Intermediate-Term Corporate Bond ETF, and explore detailed analysis of the fund's characteristics, risks and historical statistics.
  10. Stock Analysis

    4 Companies Affected by the Appreciating Dollar

    Learn why the appreciating dollar negatively impacts certain companies such as Google, Facebook, Procter & Gamble and Johnson & Johnson.
  1. Greenback

    A slang term for U.S. paper dollars. Greenbacks got their name ...
  2. Equity

    The value of an asset less the value of all liabilities on that ...
  3. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  4. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. How is the value of a pip determined?

    A pip in foreign exchange trading is a measure of a price movement in a currency pair. "Pip" is an acronym for price interest ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!