The PowerShares DB US Dollar Index Bullish Fund (NYSE: UUP) has traded slightly lower over the past month, due in large part to the Federal Reserve declining to raise interest rates following its most recent meeting.
However, UUP and the dollar have modestly regained some momentum over the past two weeks, indicating that has market volatility continues to be an issue, the dollar’s safe-haven status could be reaffirmed.
A lack of inflation is also seen as a potential deterrent to the Fed imminently hiking rates. The diminished inflation expectations has bolstered demand for long-term maturities. The spread between two- and 30-year securities dipped for a fourth day after contracting to as little as 208 basis points Monday, the least since April 28, Bloomberg reports.
Long-term Treasuries have strengthened and yields dipped on the continued decline in oil prices helped push down inflationary pressures. Meanwhile, short-term Treasury yields have been anchored as speculators bet on a slow interest rate hike from the Federal Reserve. [Low Inflation Lifts These ETFs]
The lower inflation makes Treasury bonds more attractive to fixed-income investors as the real yield, or adjusted nominal return to compensate for inflation, has become more attractive.
“The long-term chart shows a major breakout and rally in 2014 and corrective action in 2015. Since peaking in March, the index settled back into a flag pattern, so named for its appearance of a flag flying on a flagpole. It serves to correct the long advance that preceded it and usually resolves to the upside,” reports Michael Kahn for Barron’s.
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. Many are pointing to the diverging monetary policies between the U.S. Federal Reserve and overseas central banks. For instance, the European Central Bank is just starting its quantitative easing program. Meanwhile, the Fed is cogitating on tightening its monetary policy down the line, which should diminish the supply of money sloshing around the economy and strengthen the USD.
PowerShares DB US Dollar Index Bullish Fund
