The U.S. dollar, along with currency-related exchange traded fund, has appreciated to a seven-week high against other major currencies as improving U.S. economic indicators add to expectations of an interest rate hike.
The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) has gained 4.2% since the June 18 low and is now trading at its highest since the start of June. UUP 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. [Anticipating Further U.S. Dollar ETF Strength]
Meanwhile, the U.S. Dollar index is hovering around its highest since May 27.
The greenback is appreciating after the Federal Reserve Chair Janet Yellen reiterated that the first interest rate hike in almost a decade will occur later this year, reports Michael Connor for Reuters.
The Fed is taking a more hawkish stance after the U.S. Labor Department revealed an unexpected decline in new applications for unemployment payments, which pointed to an improving labor market.
Meanwhile, the euro currency was depreciating against the USD as the Greece debt crisis begins to somewhat dissipate and currency traders focus on monetary policy.
“Now that Greece is ‘somewhat’ resolved, the argument has shifted back to monetary policy divergence between the euro zone, UK and U.S.,” Tobias Davis, corporate hedging manager with Western Union, said in the Reuters article.
Specifically, the European Central Bank has loosened its monetary policy and enacted a 1 trillion euro bond purchasing program, adding to pressure on the EUR. Meanwhile, the Fed is more likely to hike rates, which would strengthen the USD.
UUP includes a large 57.6% tilt toward euro currency movements against the greenback.
However, market observers will watch for the magnitude and speed at which the Fed tightens its monetary policy.
“It will be the shallowest (tightening) cycle in Fed memory, but it will lift off in contrast with what’s happening elsewhere,” Callum Henderson, head of currency research for Standard Chartered, told CNBC. “It is modestly bullish for the dollar heading into the rate hike. Once the Fed does hike, the market will look at how far and how fast the Fed will move and the dollar could lose momentum after that. But going into the first rate hike, who else is going to raise rates?”
PowerShares DB U.S. Dollar Index Bullish Fund
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