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.
“We could get some further weakness in the dollar versus the euro and yen, but those two are mainly along for the ride. Most of the weakness will be concentrated on emerging currencies,” Stephen Gallo, a strategist with BMO, told Reuters.
The actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU), which tracks the USD against a broader basket of developed and emerging market currencies, has experienced a steeper decline of 1.5% over the past week
Meanwhile, the WisdomTree Emerging Currency Strategy Fund (NYSEArca: CEW) jumped 3.7% over the past week and gained 0.6% Monday. CEW tracks the U.S. dollar against the Mexican Peso, Brazilian Real, Chilean Peso, Colombian Peso, South African Rand, Polish Zloty, Russian Ruble, Turkish New Lira, Chinese Yuan, South Korean Won, Indonesian Rupiah, Indian Rupee, Malaysian Ringgit, Philippine Peso and Thai Baht.
PowerShares DB U.S. Dollar Index Bullish Fund
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Max Chen contributed to this article.