Currency exchange-traded funds let investors bet on or hedge against moves in foreign currencies, like the euro or yen, versus the U.S. dollar. It’s an easier process overall when compared to trading foreign exchange, or forex, directly.
Inflows tend to pick up during times when the dollar is weakening, such as if the Federal Reserve is slashing rates or when the U.S. economy is slowing relative to others.
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These ETFs can be sorted into three buckets, says Steven Rogé, chief investment officer and CEO at R.W. Rogé & Company in Bohemia, New York.
First, he notes, are single-currency trusts, such as Invesco CurrencyShares Japanese Yen Trust (ticker: FXY), Invesco CurrencyShares Euro Trust (FXE) and Invesco CurrencyShares British Pound Sterling Trust (FXB). They own physical currencies.
Others, such as Invesco DB U.S. Dollar Index Bullish Fund (UUP), use futures contracts and a rules-based basket of currency exposures.
“It is structured as a partnership and issues a K-1 come tax time, so get ready to deal with that headache if you own it in a taxable brokerage account,” Rogé says.
Finally, there is WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU), an actively managed strategy that uses forward contracts.
Use These ETFs Tactically
“The real question is: Why own any of these? The only use case we see is a U.S.-based investor who wants to keep the down payment for an imminent purchase, say a home in Japan, hedged into the local currency by buying the trust that holds physical yen,” Rogé says.
“Sure, you could use these as a risk-off diversifier, but at what cost?” he asks, citing expense ratios along with the cost of roll, or swapping currency contracts as old ones expire.
Here’s a more detailed look at the five currency ETFs named above:
| Currency ETF | Net expense ratio |
| Invesco CurrencyShares Japanese Yen Trust (FXY) | 0.40% |
| Invesco CurrencyShares Euro Trust (FXE) | 0.40% |
| Invesco DB U.S. Dollar Index Bullish Fund (UUP) | 0.70% |
| WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) | 0.50% |
| Invesco CurrencyShares British Pound Sterling Trust (FXB) | 0.40% |
Invesco CurrencyShares Japanese Yen Trust (FXY)
Each share of FXY represents a proportional interest in the actual yen held by the trust. This gives retail investors a straightforward way to own this currency in a brokerage account.
Investors typically use FXY as a bet that the Japanese yen will gain or lose value against the dollar, or to hedge yen-denominated assets. It doesn’t generate income and can be volatile, making it a poor fit for long-term growth.
This ETF has a 0.4% expense ratio and assets of about $440 million.
Long-term performance hasn’t been much to celebrate; this ETF has dropped about 4.1% over the past decade, reflecting the yen’s sustained weakness against the dollar.
FXY is suitable for investors who need the yen-to-dollar exposure. That has some applications tactically for very specific investors, but is generally not a core holding for most retirement savers.
Invesco CurrencyShares Euro Trust (FXE)
The euro is the world’s second-most-traded currency, after the dollar. This ETF tracks the closing spot price of the euro relative to the dollar.
Each share holds actual euros in a deposit account, so the price moves in lockstep with the euro-to-dollar exchange rate, meaning no foreign bank account or currency broker is required.
At 0.4% annually and about $422 million in assets, it’s a reasonably liquid way to express a view on Europe’s economic outlook versus America’s. Traders use it to position around events like European Central Bank rate decisions, eurozone inflation data or shifts in U.S. dollar strength.
Returns have been uneven. The five-year annualized return sits near zero, though the past three years have been more encouraging, at around 4.5% annually.
Invesco DB U.S. Dollar Index Bullish Fund (UUP)
This ETF bets on the dollar strengthening against a basket of six major currencies, including the euro, yen and British pound. It does this through futures contracts, not direct currency holdings, making it a tactical tool for investors betting on dollar strength or hedging foreign currency risk.
“While it is possible to use UUP for short-term tactical hedging against periods of aggressive interest rate hikes by the Federal Reserve, UUP holds structural risk when held as a long-term investment asset for retail portfolios,” says Steve Maitland, publisher and research analyst at Maitland Wealth in Wilmington, Delaware.
“Holding an ETF that tracks a fiat currency exclusively during an extended period of high inflation can result in the erosion of purchasing power of capital in a five- to 10-year time frame,” he adds.
Investors concerned about dollar weakness have increasingly shifted allocations toward real assets such as commodities, infrastructure and inflation-linked securities. Returns of these investments have historically shown low or negative correlation to the dollar.
WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU)
The WisdomTree Bloomberg U.S. Dollar Bullish Fund takes a broader approach than UUP, tracking the dollar against a basket of 10 currencies rather than six.
It uses currency forward contracts rather than futures, with maturities generally less than 30 days. Its portfolio consists almost exclusively of short-term Treasury bills, allowing investors to collect income while maintaining their dollar exposure. Its 30-day SEC yield is 3.1%.
This ETF has about $419 million in assets under management and an expense ratio of 0.5%.
WisdomTree markets USDU as a diversifier for investors hedging international stock or bond exposure, not as a core holding. It’s less suitable for long-term, buy-and-hold investors, since it profits only when the dollar strengthens.
Invesco CurrencyShares British Pound Sterling Trust (FXB)
The Invesco CurrencyShares British Pound Sterling Trust holds actual British pounds in a trust, so investors have direct exposure to the pound-to-dollar exchange rate. It gains when the pound strengthens against the dollar and loses when the dollar rises.
This ETF has a 0.4% expense ratio and a track record going back to 2006. It’s the only ETF option available for investors seeking pure pound-to-dollar exposure.
It may be suitable for traders or investors looking to hedge exchange rate exposure or bet against the dollar.
As with other currency ETFs, it’s less suitable for long-term, buy-and-hold investors, as these ETFs don’t compound or generate returns the way stocks or bonds do; they simply track an exchange rate.
The fact that FXB has been essentially breakeven over the last 10 years is a good indication of how this is more suited for short-term capture of exchange-rate dynamics.
[READ: De-Dollarization: What Would Happen if the Dollar Lost Reserve Currency Status?]
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5 Best Currency ETFs to Buy Now originally appeared on usnews.com
Update 06/18/26: This story was previously published at an earlier date and has been updated with new information.
