The strong dollar theme was again prominent during the first quarter with the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), the U.S. Dollar Index tracking ETF, and the actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU) gaining an average of 6.6% this year.

Although the dollar and those ETFs faltered in the back half of March, some analysts and market observers are betting the greenback has more upside ahead. Additional dollar upside will be bolstered by a U.S. economy that is expanding more rapidly than its European and Japanese counterparts and bifurcated monetary policy that indicates the Federal Reserve will boost interest rates while the European Central Bank, Bank of Japan and others keep rates low and engage in monetary easing. [Buying the Dollar ETF Dip]

Alan Ruskin, global head of developed-market currencies strategy at Deutsche Bank, told James Ramage of the Wall Street Journal that the dollar’s strength, particularly against the euro, is intimately tied to the timing of the Fed rate increase.

“You’re seeing enormous sensitivity to the timing of the Fed rate hike. If the Fed tightens in June, then there’s a natural transition: The U.S. rates story becomes the driver for the next leg in dollar strength. If Fed tightening is delayed through September, the euro could go all the way to $1.14. If, instead, the market is more confident the Fed could go in June, then the euro won’t make progress against the dollar beyond the spike we saw after the Fed meeting,” Ruskin told the Journal.

In the first quarter, advisors using ETFs and ETF investors appeared more than comfortable betting on the Fed raising rates sooner than later.

Through the first three months of the year, four of the top 10 asset-gathering ETFs were currency hedged funds. The WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) saw first-quarter inflows of $10.1 billion while theDeutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF) added $5.1 billion in new assets.

Interestingly, inflows to currency hedged ETFs accelerated in March even after the dollar retreated following the most recent Fed meeting. Assets in currency hedged ETFs have swelled by $36 billion over the past three years and, importantly, 90% of the $12 billion that has gone into the funds this year has flowed to products that are not dedicated Japan ETFs, according to a research piece by Deutsche Asset & Wealth Management head of ETF Strategy Dodd Kittsley on March 9. [Currency Hedged ETF Craze Just Starting]

So as of March 9, currency hedged ETFs had attracted $12 billion in new assets on a year-to-date basis, but by the end of the first quarter, HEDJ and DBEF combined for over $15.2 billion in inflows while the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and the iShares Currency Hedged MSCI EAFE ETF (NYSEArca: HEFA), both of which were also among the top 10 asset-gathering ETFs in the first quarter, added almost $4.6 billion combined. [Hot Asset-Gathering Pace for This ETF]

The risk to the dollar, and by extension to currency hedged ETFs, is that the Fed will wait longer-than-expected to raise interest rates. Expectations of a June rate hike, or at the latest September, have been an important driver behind the gains for UUP and USDU this year.

Ruskin told the Journal he sees ongoing weakness for the yen.