The U.S. dollar and its related exchange traded fund (ETF) experienced an excellent week last month, but the good times may be over, at least for now. Employment numbers due out this week may determine the greenback’s next move.
First, some news. On Tuesday, the Deustche Bank AG (DB) will resume selling PowerShares DB U.S. Dollar Index Bullish (NYSEArca: UUP), issuing 240 million new shares on higher investor demand for exposure to the U.S. dollar, reports Kathy Shwiff for The Wall Street Journal. The fund halted trading new shares last month for the second time since November after demand surged. [ETF seeks more new shares.]
The U.S. dollar has continued to depreciate against most major currencies while stocks and other riskier assets saw higher demand, comment Ben Levisohn and Bo Nielsen for Bloomberg. Investors are also capitalizing on the carry trade strategy by borrowing in the United States at the Fed’s target rates of o% to 0.25% and reinvesting the money in countries with appreciating currencies. [6 ways to trade currency ETFs.]
With the U.S. factory index increasing to around 54 to 56 in December, investors have grown optimistic with the strong outlook for manufacturing and “it’s ignited a risk-on, sell-the-U.S.-dollar scenario,” remarks Andrew Busch, global currency strategist at Bank of Montreal.
The Dollar Index jumped 4% in December to 77.860 after a better-than-expected November payroll number prompted the Fed to consider withdrawing stimulus measures – any sign of job growth raises expectation of a faster hike in interest rates, which would boost dollar-based assets. The payroll numbers coming out in Jan. 8 are expected to be favorable but still negative. [Stocks, ETFs slump on strong dollar, weak employment.]
The dollar dropped on Monday as investors engaged in the time-honored tradition of profit taking on recent gains in the dollar, reports Gertrude Chavez-Dreyfuss for Reuters. For December payroll numbers, the projections put employment between a loss of 80,000 to an increase of 50,000. [Dollar’s next move?]
For more information on the dollar, visit our U.S. dollar category.
- PowerShares DB U.S. Dollar Index Bullish (NYSEArca: UUP): up 2% in the last month
- PowerShares DB U.S. Dollar Index Bearish (NYSEArca: UDN): down 2% in the last month
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.