You can mostly thank Europe for this one: the PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP) exchange traded fund (ETF) has gone on a tear in the last month.
Given the uncertainty of the global market and the state of currencies these days, there’s some debate about how long this strength will stick.
Forex News Now points to a few reasons that the trend may continue, at least in the short-term:
- Europe Uncertainty. So far, the European Union has been able to contain the various crises that have popped up this year, but what if the contagion finally does spread? No one really knows.
- Risk Aversion. Risks in Europe, posturing between the Koreas and concerns in other foreign markets have led investors back to safe havens, and the dollar has served as one in such periods.
- The Euro. As a result of Europe’s issues, the euro has shown increasing weakness and has faced an investor sell-off. [Currency ETFs Get Ready to Rumble.]
The timing of the dollar’s rally is still interesting because the general belief is that the Fed’s Quantitative Easing program would weaken it. Over the long-term, this may still hold true, but it’s certainly not the case now, says Inside Futures.
Watch the trend lines on UUP for signs of a reversal, which may happen when inflation comes into play, and keep it in mind as one way to play the dollar’s renewed vigor. [U.S. Dollar ETFs Play Both Sides of the News.]
If the dollar weakens, consider the opposite play: PowerShares DB U.S. Dollar Bearish (NYSEArca: UDN), which is down 4% in the last month.
Tisha Guerrero 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.