Hedge Funds Flip on the Dollar—A Buy Signal for These 3 Stocks?

Key Points

• Hedge funds are reversing bearish bets on the U.S. Dollar, helping drive a Dollar Index rally that signals shifting global risk sentiment and capital flows.
• This stronger Dollar benefits U.S. companies like Airbnb, Home Depot, and Dow by reducing costs, improving margins, and boosting travel demand.
• Institutional investors are already positioning by increasing stakes in Dollar-leveraged equities ahead of potential upside.

How does a move in the Dollar Index affect your portfolio?

This is a question many retail investors overlook, even though currency shifts ripple across every asset class. Whether you're holding stocks, bonds, or commodities, the strength of the U.S. Dollar plays a key role in pricing, margins, and global capital flows.

And in 2025, that question has become more urgent.

For much of the year, hedge funds were aggressively short the U.S. Dollar, betting that slowing growth and geopolitical risks would drag it lower. Now, they are unwinding those positions. Why?

A shift in global risk sentiment—fueled by rising tariffs, geopolitical uncertainty, and soaring gold prices—is causing more and more international investors to use the Dollar as a potential haven for their capital. Hedge funds are now reversing course, helping to drive a 3% rally in the Dollar Index this month alone.

This sharp move is creating opportunities in U.S. companies with significant international exposure, such as Airbnb Inc. NASDAQ: ABNB, The Home Depot Inc. NYSE: HD, and Dow Inc. NYSE: DOW, which could see margin expansion, demand recovery, and free cash flow acceleration as this trend plays out.

And if hedge funds are any indication, the rotation has already begun.

Airbnb: Riding the Return of International Travel

Airbnb operates across more than 220 countries and regions, with a significant share of its revenue coming from non-U.S. listings. According to some estimates, over half of Airbnb’s revenue is generated outside the United States, giving the company meaningful exposure to cross-border travel dynamics and currency fluctuations.

A stronger Dollar can help drive international travel in two ways: by encouraging more Americans to travel abroad and by making travel-related services priced in other currencies more attractive to U.S. travelers. It also has indirect benefits such as lower operational costs in international markets and foreign exchange gains from cross-currency transactions.

Airlines are already seeing early signs of this travel recovery. Delta Air Lines Inc.'s NYSE: DAL recently reported an increase in its third-quarter transatlantic unit revenue, hinting at a broader rebound in discretionary spending.

Wall Street seems to agree, with the analyst consensus price target set at $141.81 for ABNB stock, implying 19.3% upside from today’s prices. Mizuho’s Lloyd Walmsley recently went further, initiating coverage with an Outperform rating and a $151 price target, suggesting 27% potential upside.

Institutional investors appear to be positioning early. Assenagon Asset Management increased its Airbnb holdings by 56.7% in October, bringing its total to $171.8 million. This move may reflect a broader hedge fund thesis centered on Dollar-driven travel demand.

Home Depot: Imports Just Got Cheaper

In a rising Dollar environment, Home Depot could quietly become a margin expansion story. As a major importer of goods and materials, Home Depot’s cost of goods sold declines when the Dollar strengthens—and those savings can flow directly to its bottom line.

A stronger Dollar also boosts sentiment and purchasing power among domestic consumers, potentially unfreezing some do-it-yourself projects that rely on Home Depot’s products.

That combination—lower input costs and higher spending—sets up Home Depot for stronger gross profit margins and EPS in the coming quarters. Betting on this outcome, Wall Street analysts maintain a consensus price target of $435.42, indicating a potential 14.8% upside. 

This confidence persists despite a one-month decline of 10.4% in Home Depot’s stock price, which suggests the bottom could be in soon. Seeing the risk-to-reward ratio improve on this setup, Spencer Hanus from Wolfe Research found enough reason to initiate coverage on Home Depot with an Outperform rating and a $497 price target, implying 31% upside.

Dow: Free Cash Flow Is the Quiet Catalyst

Dow stock has fallen to a low 40% of its 52-week high, creating a highly asymmetric risk-to-reward ratio for buyers. But how does a stronger Dollar help a company like Dow? 

The chemical giant is heavily reliant on capital expenditures and commodity pricing, but the key metric to watch is free cash flow conversion, or how efficiently the company turns revenue into usable capital. As the Dollar strengthens, input costs—including globally priced materials and transportation—tend to fall. If Dow can reduce inventory and logistics spending, its cash flow margins could improve significantly, even without a major boost in revenue.

Wall Street analysts understand this dynamic very well, so they have maintained a consensus price target of $29.63 on Dow stock. Despite implying a 36% upside, the number is still significantly below the company’s 52-week high of $53.83.