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Tickers in this Article: SPY, UUP, DBV
The government is stepping in with $700 billion to bail out Wall Street firms and perhaps save the entire U.S. economy. Investors should follow how the U.S. dollar has responded and consider an exchange-trade fund that uses a long and short currency strategy focused on capitalizing on strong economies.

Who's Counting Anyway?
Prospects of the $700 billion Wall Street bailout pushing the U.S. budget deficit over the $1 trillion mark may cause the U.S. dollar, which has been a good hedge against the broader U.S. market so far this year, to have more reason to move downward. The White House has already estimated a $482 billion deficit due to the ailing economy and the bipartisan $170 billion stimulus package approved by Congress and President Bush earlier this year.

U.S. Dollar Index Hedge
The PowerShares DB US Dollar Index Bullish (AMEX:UUP) is meant to replicate the performance of being long the U.S. Dollar against the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona and the Swiss franc. UUP has returned -0.08% since the beginning of the year while the SPDRs S&P 500 Index ETF (AMEX:SPY) has returned -17.85%.

Basket Hedge
The PowerShares DB G10 Currency Harvest Fund (AMEX:DBV) has a unique strategy for protecting investors against currency swings. By relying on the idea that currencies associated with high interest rates tend to outperform currencies tied to low interest rates, DBV is currently long Australian dollars, New Zealand dollars and the Norwegian krone and short the Swiss franc, the yen and the U.S. dollar.

Does the Long-Short Play Work?
DBV is well diversified, but it is also an example of how the mix of currencies set in the long and short positions can quickly reverse course and negatively effect results. DBV has returned -9.28% year to date apparently dragged downward by a strengthening U.S. dollar. In July the USD received a boost on news of strong durable goods orders and easing fears concerning the U.S. economy months ahead of the government bailout plan announcement.

Final Thoughts
The U.S. dollar is having a tough time and it looks like there is more pain to come. With the threat of a higher budget deficit against the possibility of the U.S. economy rebounding from the implementation of the government fix, investors will have to wait to see which side of the U.S. dollar to play.

To learn how the relative strength of currencies can effect your portfolio performance, read Broadening The Borders Of Your Portfolio.

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