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, is off about 2%. However, some currency market observers believe traders should not be too hasty in betting against the greenback.
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.
To this point in 2016, investors have preferred other safe-haven currencies, namely the Japanese yen, to the dollar. Of course the dollar and UUP could receive a boost if the Federal Reserve raises rates several more times. 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]
“The greenback is down 2.4 percent versus the euro and 6.3 percent against the yen in 2016 as investors scaled back wagers of dollar strength based on Fed rate increase while other major central banks increase monetary stimulus,” reports Andrea Wong for Bloomberg. “Futures traders price in a 44 percent probability that the Fed raises rates this year, based on the assumption that the effective fed funds rate will trade at the middle of the new FOMC target range after the next increase. The likelihood is up from 30 percent a week earlier.”