- U.S. dollar experienced one of its worst three-week streaks in over four years
- PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) has declined 3.8% since the start of March
- PowerShares DB US Dollar Index Bearish Fund (NYSEArca: UDN) jumps 3.9% since the start of the month
The U.S. dollar experienced one of its worst three-week streaks in over four years as a dovish Federal Reserve sent the greenback reeling. On the other hand, a bearish USD exchange traded fund bet is capitalizing on the carnage.
Since the start of March, 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, declined 3.8%.
Meanwhile, currency traders turned to an inverse dollar ETF to hedge against the pullback. 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, jumped 3.9% since the start of the month.
The U.S. Dollar Index, which tracks the USD against a basket of developed market currencies, has retreated to 95.086, it’s lowest since October 2015.
The greenback experienced a precipitous falloff Wednesday and Thursday, following the Federal Reserve’s decision to cut projections for interest-rate hikes to two later this year from a previously estimated four rate increases, Bloomberg reports.
Macquarie Bank Ltd. and Morgan Stanley, two of the world’s top 10 currency forecasters, are also warning of potential further risks in the U.S. dollar ahead.
“The fact that they didn’t raise rates and wound back expectations for future increases in 2016 has obviously hurt the U.S. dollar,” Derek Mumford, a director at Rochford Capital Pty, told Bloomberg. “That can continue in the very near term.”
The U.S. dollar has previously rallied on expectations for a tighter U.S. monetary policy, which would diminish the amount of dollars sloshing around the economy and prop up the greenback against foreign currencies. However, with Fed backtracking on its interest rate outlook, the dollar is losing some of its previous momentum.
“The falling USD has the characteristics of a pain trade that seems to have further to run,” Morgan Stanley analysts including Hans Redeker, the global head of currency strategy, wrote in a note. However, “for the USD to experience a long-term trend change requires more than a dovish Fed.”
PowerShares DB US Dollar Index Bearish Fund