Signs of an improving economy are helping the U.S. dollar and currency-related exchange traded funds recover from a two-month sell-off.
Since the May 15 lows, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, has gained 4.6%. Additionally, the actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU), which tracks the USD against a broader basket of developed and emerging market currencies, has increased 3.8%. [Recent Weakness in Dollar ETFs Only a Minor Setback]
Robin Brooks, Goldman Sachs Group’s chief currency strategist, argued that the period of weakness in the U.S. dollar is over, as long as economic data is “half-way decent,” reports Rachel Evans for Bloomberg.
“The market is once again under-positioned on the long U.S. dollar theme and will continue to play catch-up,” Brooks told Bloomberg.
Currency traders have diminished bets on the USD to the lowest level since September after the greenback depreciated 6% from the mid-March high in response to poor economic reports.
However, investors could be repositioning as the government release more favorable economic data ahead, with core inflation accelerating at a faster-than-expected pace.
Brooks also believed that American data will look better, compared to the worsening economic outlook in Europe.