The U.S. dollar is pushing toward its longest rally since Lyndon Johnson was in office as the Federal Reserve signaled an end to its expansionary monetary policy next year. However, U.S. dollar exchange traded fund investors seem to be growing wary over the sustained run up.
The PowerShares DB US Dollar Index Bullish Fund (NYSEArca: UUP) is up 3.2% over the past month and up 4.5% over the last three months as the U.S. Dollar Index advanced for a 10th consecutive week, the longest stretch since at least March 1967. [U.S. Dollar ETFs Jump on Improving U.S. Economy]
As the rally kept going, investors have been pulling money out of UUP. According to PowerShares data, UUP saw $40.5 million in net outflows over the past 30 days.
“This will be the 10th week of gains for the dollar index and it’s unusual to see consecutive weekly gains extend beyond more than that,” Shaun Osborne, chief currency strategist at TD Securities, said in a Reuters article. “If we are going to stop anywhere, this may be a good point to slow down in this rally.”
The U.S. dollar has been surging on diverging central bank bets. For instance, market observers believe the Fed will likely hike rates by mid-2015. Meanwhile, the European Central Bank is increasing loans to Eurozone banks and plans to boost the balance sheet by as much as 1 trillion euros to stimulate the economy. Additionally, Bank of Japan Governor Haruhiko Kuroda has pledged to adjust policy to combat any economic weakness.
“The dollar is the No. 1 trend across all asset classes going into the end of the year,” Neil Azous, founder of Rareview Macro LLC, said in a Bloomberg article. “It’s back to trading interest-rate fundamentals.”