How Far Will The Dollar Slide?

Without an immediate Federal Reserve monetary policy change, the U.S. dollar and currency-related exchange traded fund have been drifting lower.

Over the past week, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which 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, has dipped 1.2%.

UUP continued to fall 0.2% Monday after Federal Reserve Vice Chairman Stanley Fischer’s said the U.S. central bank is taking a cautious stance in deliberating its first rate hike in almost a decade as overseas volatility remains a major concern, reports Ira Iosebashvili for the Wall Street Journal.

Consequently, the extended low-rate environment has weighed on the U.S. dollar.

“The dollar is likely to drift lower in the short term but, with a rate hike still coming in December, in our view, this slide may not last too long or go too far,” strategists at Standard Bank said in a note.

Consequently, currency traders who believe in the continued short-term weakness in the dollar can hedge with an inverse U.S. dollar ETF. The PowerShares DB US Dollar Index Bearish Fund (NYSEArca: UDN), which takes the inverse or short performance of the U.S. dollar against the same basket of six major currencies as UUP, is up 1.1% over the past week and was 0.3% higher Monday.

The greenback has been particularly weak against emerging currencies, which have staged a huge rally after the recent fall-off.