The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) and the actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU) have steadied after the Federal Reserve declined to raise interest rates last month, but the these ETFs, it really is all about the Fed and the central bank’s next move on interest rates.

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 ETFs]

“While we have seen many Fed officials continue to talk of the likelihood of a rate hike at the December Federal Open Market Committee (FOMC) meeting scheduled for mid-December, mixed economic data on top of the weak jobs number may be enough to convince the Fed to maintain the current accommodative rate policy into 2016. Fed Funds futures traders have all but nixed the possibility of a rate hike at the October 27-28 FOMC meeting, with the October Fed Funds futures pricing-in only a 6% chance of a rate hike. For December, the odds of a rate hike increase, but futures are only looking at a 31% probability at the December meeting. It is not until the March 2016 meeting where the Fed Funds futures are looking at an over 50% chance of a rate hike. As we all know alot can happen in the global economy in the next 6 months, so traders should be prepared for continued market volatility going into the New Year,” according to Options Express.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.