Although safe-haven investments have been favored this year, 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 risen just a third of a percent.
Numerous factors could play roles in the dollar’s performance this year, including commodities prices, the Federal Reserve’s plans for additional interest rate hikes and the presidential election. The dollar’s current bull market still is not five years old and knowing that dollar bull markets can last for eight or nine years means UUP could have another year or two of upside ahead of it. In fact, the dollar could rally for another two years.
However, market participants are displaying some mixed emotions about the greenback’s prospects following the most recent Federal Reserve meeting. The tighter monetary policy would diminish the supply of U.S. dollars floating around in the economy and help the greenback appreciate against foreign currencies. [Dollar ETFs Could Soar Well After Fed Liftoff]
“Whether the Democrats stay in the White House or not, a new President would spell a different take on political and economic policies, which could greatly impact U.S. dollar strength,” reports Charles Purdy for Forbes.
On that note, what could stoke additional upside for UUP and the dollar is the historical tendency of equities to perform poorly in presidential election years, particularly those years in which there is no incumbent in the race. That is the case this year.
Still, the implication that the Fed’s next rate hike after this week could be several months off could be enough to dampen near-term enthusiasm for the dollar and ETFs like UUP. Some market observers recently noted the dollar should rise against the euro next year, but that the common currency’s losses against its U.S. rival will not be nearly as severe in 2016 as what was seen last year.
Oil prices will also figure prominently in dollar price action this year.
“Given that crude oil prices are quoted in the U.S. currency, a strengthening dollar could place pressure on the resource, affecting commodity-driven countries, which could, in turn, affect the U.S. dollar,” according to Forbes.
PowerShares DB U.S. Dollar Index Bullish Fund
