The U.S. dollar hovered near a six-week high on Friday as conflicting signals surrounding a potential U.S.-Iran peace agreement kept global markets volatile. Despite mixed developments, investors appeared cautiously optimistic that negotiations may still yield progress.
Washington and Tehran remained divided over Iran’s uranium stockpile and control of the Strait of Hormuz. However, U.S. Secretary of State Marco Rubio noted that there had been “some good signs” in the discussions, per Reuters, as quoted on Yahoo Finance.
Markets Remain Cautious
The conflicting headlines triggered sharp swings across financial markets overnight, although currency movements in Asian trading stayed relatively muted as investors waited for clearer direction.
The dollar index edged slightly higher to 99.23, staying close to Thursday’s peak of 99.515 — its strongest level since April 7, per the same Yahoo Finance source.
Strong U.S. Data Boosts Dollar
The greenback also drew support from upbeat U.S. economic data. Weekly jobless claims declined last week, while manufacturing activity climbed to a four-year high in May, reinforcing confidence in the resilience of the U.S. economy.
“We're coming to the end of week 12, we're six weeks into the ceasefire, and I'm not convinced we're any closer to a resolution between the U.S. and Iran,” said Tony Sycamore, market analyst at IG Group.
Sycamore added that risks still favor further dollar strength, arguing that a more forceful U.S. response could emerge if tensions in the Middle East persist, per the same article.
ETF Investment Strategies to Follow
Against this backdrop, investors may consider the following ETF strategies:
Small-Cap ETFs: Funds that focus on smaller, domestic-oriented companies are often recommended when the dollar is strong because they depend more on internal U.S. economic growth. iShares Russell 2000 ETF IWM is a good bet here.
Dollar-Tracking ETFs: The dollar heavy ETFs like Invesco DB US Dollar Index Bullish Fund UUP is another good bet.
Short Yen: A stronger U.S. dollar and elevated oil prices continued to weigh on Asian currencies, particularly the Japanese yen. ProShares UltraShort Yen YCS could be a winning pick.
Tough Time for Emerging Markets? The dollar strength can weight on the emerging markets investing, as countries that are reliant on the U.S. dollar may see weaker local currencies and financial systems. iShares MSCI Emerging Markets ETF EEM should be tracked closely.
Gold Under Pressure? The uptick in the U.S. dollar is negative for raw materials and commodities, as these are priced in the U.S. dollar. SPDR Gold Shares GLD has lost about 4.2% over the past month.
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This article originally published on Zacks Investment Research (zacks.com).