U.S. dollar exchange traded funds continue to strengthen as currency traders anticipate the Federal Reserve is on schedule to normalize its monetary policies, with the euro heading toward dollar parity.
Over the past month, 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, rose 5.1%. 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, gained 3.7%. Year-to-date, UUP increased 8.1% and USDU advanced 7.9%.
The CurrencyShares Euro Currency Trust (NYSEArca: FXE) fell 5.9% over the past month, with the euro now trading around $1.0647.
Dollar ETFs have been rallying on speculation the Federal Reserve would hike interest rates from the near-zero levels. Fed Chair Janet Yellen has stated that December would be a “live possibility” for an interest rate hike if the U.S. economy continues to strengthen, and the strong jobs number help support the Fed timeline. The tighter monetary policy would diminish the supply of U.S. dollars floating around in the economy and help the greenback appreciate against foreign currencies. [Dollar ETFs Could Soar Well After Fed Liftoff]
Additionally, the higher yields on U.S. government debt, compared to German bunds, has attracted more European investment interest. Consequently, as Europeans invest in U.S. dollar-denominated assets, the investors have been selling euros for U.S. dollars. [Dollar ETFs Bandwagon Picking Up Steam]
Meanwhile, the European Central Bank is more likely to expand quantitative easing to bolster growth. Some observers expect the ECB to take further action after the terror attacks, which may weighed on the economic outlook.
“The latest developments after the terror attacks in Paris will strengthen the political support for ECB actions at its meeting on December 3,” Christoph Riniker, head of equity strategy research at Julius Baer, told the Wall Street Journal.