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, traded higher Tuesday in advance of Wednesday’s Fed meeting.
However, market participants are displaying some mixed emotions about the greenback’s prospects following the Fed meeting, even if the U.S. central bank boosts borrowing costs for the first time in nearly a decade.
UUP’s biggest move could still be yet to come. However, after the U.S. dollar has appreciated almost 10% against its peers this year, some traders are growing cautious. For instance, Societe Generale SA’s Kit Juckes argues that the dollar is overvalued by some measures, Bloomberg reports.
At issue is in what direction that move will be.
“A statement suggesting the FOMC will raise rates now and possible pause at the next meeting could be seen as negative for the greenback. Much of the recent weakness in the US Dollar Index can be attributed to profit taking and traders lightening up positions ahead of the Fed meeting. The US Dollar Index also suffered some setbacks due to traders unwinding carry trades borrowed in Euros. Tomorrow’s FOMC meeting will likely determine the near-term direction of the market,” according to OptionsExpress.