With the European Union still facing a debt crisis, growth slowing across China, and a host of other economic uncertainty creeping back into the picture, investors have continued to shun risk assets. Everything from emerging market equities to commodities, have seen their asset prices fall over the past few weeks, as the fear of another global downturn takes hold. With that in mind, one of the worst long-term investments could be one of the best in the short term. (For more on short-term investments, check out Do Your Investments Have Short-Term Health?)

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The Best House In a Bad Neighborhood
Ultra low interest rates, persistently high budget deficits, quantitative easing programs and major underfunded entitlement programs, are the prime reasons why the U.S. dollar has continued to fall over the decade. However, as the economic problems facing the globe have begun to intensify over the last few months, the greenback has rallied. The U.S. Dollar Index (USDX), which measures the value of the dollar relative to a basket of six specific foreign currencies, has been steadily rising. The index surged nearly 7% in August and continued to rally throughout September. Overall, the USDX saw a nice quarterly gain of 5.8%.

While in the long term the greenback may be toast, in the short to medium term, there is plenty to dollar bullish about. Despite recent tough talk by European officials about taking large measures,to ensure the risk of a default by Greece, doesn't cripple Europe's banking sector, comments by officials later in the week, show many policy makers are reluctant to take such drastic steps. Elsewhere in Europe, the Bank of England has recently spent another 75 billion pounds ($116 billion) in an attempt to stimulate a struggling British economy, through its own easing programs. In addition, as natural resource prices have cratered, strong commodity-based currencies, such as Canada's loonie and the Australian dollar, have softened via the greenback. Domestically, key data for consumer spending, income and inflation has been poor, continuing to boost the dollar further.

In 2008, when the global recession and credit crisis first hit, both U.S. treasuries and the dollar were seen as the "good houses in the bad neighborhood." As recessionary fears continue to take hold, the greenback could be a great medium-term buy at these levels. Overall, analysts expect the recent dollar euphoria to continue until at least the end of 2011. (For more on the dollar, read Profiting From A Weak U.S. Dollar.)

Bets For a Strong Dollar
While the long term picture isn't that rosy, investors could use the buck's current strength to hedge downside risk and make some medium-term gains. The easiest way to play the dollar's current trend higher, is through the PowerShares DB US Dollar Index Bullish (NYSE:UUP). The ETF tracks futures contracts written against the USDX, and replicates the performance of being long the U.S. Dollar against the Euro, Yen, Pound, Loonie, Swedish Krona and Swiss Franc. For investors looking for more "juice" in their dollar play, PowerShares offers a 3x leveraged version of the same fund in the PowerShares DB 3x Long US Dollar Futures ETN (Nasdaq:UUPT).

Investors also have the option of capitalizing on Europe's continued woes, by shorting the Euro. Both the Market Vectors Double Short Euro ETN (NYSE:DRR) and ProShares UltraShort Euro (NYSE:EUO), can be used as play against the ECB's inability to control the banking crisis.

Finally, investors may want to look at the exporting nations who will benefit from a strong dollar. Exports from a variety of nations will become more competitive as the U.S. dollar continues to strengthen. A weak Euro will benefit Germany's high engineered industrial goods, and Mexican exports to the United States historically grow when the dollar is strong. Both the iShares MSCI Mexico (NYSE:EWW) and iShares MSCI Germany Index (NYSE:EWG) offer exposure to each nation's multinationals.

Bottom Line
Despite the long term downward trend of the U.S. dollar, the currency has seen strength over the last few months. As economic uncertainty continues to persist, analysts expect the dollar to continue rising for medium term. For investors, the previous funds, along with the ProShares UltraShort Yen (NYSE:YCS), make interesting choices to play the trend. (To learn more on how you can profit using currency ETFs, see Profit From Forex With Currency ETFs.)

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