Here’s What Is Benefiting From Fed Tapering Fears

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Amid the global jitters about a possible unwinding of U.S. monetary stimulus, there's one asset that appears to be gaining favor and that's dollar exchange traded funds (ETFs), analysts say.

Equities in the U.S., Europe and Asia have been pushed off multi-year highs, while government bond yields have risen sharply as investors brace for a potential unwinding of the Fed's asset-buying program in the months ahead.

In contrast, money has been flowing into U.S. dollar ETFs, investment funds that trade on exchanges in the same way stocks do, says Peter Harper, director of distribution at BetaShares Capital in Sydney.

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"Over the last six months people have wanted to buy U.S. assets as markets there recovered and now we are starting to see a switch, with investors becoming a little bit more cautious in case QE [quantitative easing] gets pulled so we are seeing inflows into U.S. dollar ETFs," Harper told CNBC Asia's "Cash Flow."

"What we have here is that in a situation where QE might get pulled, this would be positive for the dollar but potentially negative for U.S. assets," he said.

According to Harper, there have been more than $35 million worth of inflows into U.S. dollar ETFs in the past month.

"There's a lot of reason to think that if the Fed pulls back on its money printing that will be positive for the dollar," he said.

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Expectations that the U.S. Federal Reserve, which meets this week, could start unwinding its massive monetary stimulus or quantitative easing (QE) program has sent financial markets on a roller-coaster ride over the past month.

On the spot currency markets, the dollar has also come under pressure against some major currencies in recent weeks. Against the yen, for example, the dollar is down almost 9 percent from a four-and-a-half year peak hit last month.

Simon Ho, executive director at investment manager Triple 3 Partners, said he shared the view that dollar was likely to head higher with a phasing out of quantitative easing.

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"Improving U.S. economic fundamentals, the potential for tapering, means I would favor the dollar against a basket of currencies, which is what the dollar index is," he said.

The dollar index was trading at 80.79 on Monday, not far off a more than four-month low hit last week at about 80.50 amid uncertainty about the outlook for Fed policy.

"We've seen significant dollar weakness since May on uncertainty about Fed policy. I think dollar strength will return at some point when QE tapering is more evident," Thu Lay Nguyen, currency analyst at Commerzbank told CNBC Europe's "Squawk Box."

— By CNBC.Com's Dhara Ranasinghe, Follow her on Twitter: @DharaCNBC