After the Federal Reserve stated that it will remain committed to a low interest rates, the U.S. dollar has been weakening and continues to dip on mixed economic data. Traders who are more bearish on the greenback can consider inverse exchange traded fund options to hedge the depreciating currency.
The PowerShares DB US Dollar Index Bullish Fund (NYSEArca: UUP), which tracks a basket of the six major world currencies – the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, has declined 0.5% over the past week.
Meanwhile, the PowerShares DB US Dollar Index Bearish Fund (NYSEArca: UDN), which tracks the inverse, or short, performance of the U.S. dollar against the same basket of six major currencies, has gained 0.3% over the past week and is testing its 200-day moving average. Additionally, for the more aggressive traders, the PowerShares DB 3x Short US Dollar Index Futures ETN (NYSEArca: UDNT) tries to provide a -300% , or three times the inverse, returns of the U.S. dollar. UDNT is up 0.5% over the past week.
The USD has been depreciating after Federal Reserve Chair Janet Yellen stated that the they are committed to low rates for “a considerable time,” reports Rachel Evans for Bloomberg.
“We have tended to digest better U.S. data and taken it on the chin,” Alan Ruskin, the global head of Group of 10 foreign exchange at Deutsche Bank AG, said in the article. “After we heard from Yellen last week, we know what the Fed’s take is in terms of growth and inflation data. They certainly expect the economy to come back, but there’s some uncertainty, and there’s still a long way to go before tightening.”
The Bloomberg Dollar Spot Index, a gauge of the U.S. currency against 10 major counterparts, dipped to 1,008.94 Monday, the fourth straight session of losses and longest losing streak since April 30.
The U.S. dollar may also be falling ahead of weak economic expectations. Analysts project the U.S. economy shrank an average 1.8% over the first quarter ahead of the June 25 report. According to economists’ median estimates, U.S. factory orders for durable goods declined 0.1% in May. Observers also anticipate Tuesday’s new home sales for May rose 1.4%, below the 6.4% gain for April. [The Allure of Dollar ETFs]
“It’s a combination of the still very dovish Fed and yet still pretty decent underlying economic data,” Peter Kinsella, a senior currency strategist at Commerzbank AG, said in the article. “It’s the classic Goldilocks scenario. The data’s coming in, it’s not too hot, it’s not too cold, and people sell the dollar and trade it with a benign neglect.”
PowerShares DB US Dollar Index Bullish Fund
For more information on the greenback, visit our U.S. dollar category.
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.