Following Wednesday’s news of the Federal Reserve’s first interest rate hike in nearly a decade, 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, closed higher by just one cent.
That performance could be seen as disappointing by the legions of investors that recently piled into UUP and other long dollar equivalents in anticipation of the greenback surging on the back of higher U.S. borrowing costs.
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]
December has been a trying month for the dollar and that was the case even before the Fed announcement. Earlier this month, the CurrencyShares Euro Currency Trust (NYSEArca: FXE) surged after the European Central Bank (ECB) disappointed by global financial markets by not expanding its quantitative easing program by as much as investors were hoping for.
The good news is some market observers still believe dollar/euro parity still has a chance of coming to pass.