As the U.S. economy expands while Japan and the Eurozone stumble, traders are pushing up the U.S. dollar, along with related exchange traded funds, and dumping the euro and yen currencies.
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, gained 0.4% Tuesday. Over the past three months, UUP has increased 6.8%. [U.S. Dollar ETF Pushes Past 10th Week of Gains]
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, was up 0.3% Tuesday and gained 5.9% over the past three months.
Meanwhile, for the more aggressive trader, the PowerShares DB 3x Long US Dollar Index Futures ETN (NYSEArca: UUPT), which provides a leveraged 300% bullish monthly return to the U.S. dollar futures index, jumped 3.7% Tuesday and returned 19.0% over the past three months.
Since July, the yen has depreciated 8% against the greenback to a six-year low and the euro has dipped 7% to a near two-year low as traders anticipate that a strengthening U.S. economy will force the Federal Reserve to hike rates, which would bolster the value of the dollar, reports Ira Iosebashvili for the Wall Street Journal.
Additionally, currency traders are hedging against European Central Bank and Bank of Japan loose monetary policies while the foreign central banks try to stimulate their weak economies.
“After many months, we are finally seeing the dollar diverge with the euro and yen, thanks to the different monetary policies at central banks,” Peter Gorra, head of foreign exchange at BNP Paribas, said in the article.
Aroop Chatterjee, a strategist at Barclays, argues that the euro has more room to depreciate, with the central bank more apt to further ease its monetary policy.
“We now expect a large, multiyear downtrend in the euro,” Chatterjee said in the article. “Much of this depreciation is likely to come in the next six months.”
Traders who want to position for additional declines in the euro can consider inverse ETF options, such as the ProShares Short Euro (NYSEArca: EUFX), which tracks the inverse, or -100%, daily performance of the U.S. dollar price of the euro, along with the double inverse or -200% option, the ProShares UltraShort Euro (NYSEArca: EUO). Over the past three months, EUFX is up 7.5% and EUO is up 15.2%.
Furthermore, some traders believe the BOJ will likely implement additional stimulus measures after Japan’s economy shrunk over the second quarter at its fastest pace since 2009, fueling another round of yen selling. [Japanese Yen ETFs Face Major Headwinds]
For those who want to hedge against further weakness in the yen, the ProShares UltraShort Yen (NYSEArca: YCS) tries to reflect the daily -2x or -200% daily return of the U.S. dollar price of the yen. YCS has increased 16.0% over the past three months.
For more information on the greenback, visit our U.S. dollar category.
Max Chen contributed to this article.