In an environment where safe-haven assets have been prized by investors, it would seem logical that the U.S. dollar would be a prime destination. However, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) is lower by 1.3% year-to-date.
UUP acts as the ETF proxy for the U.S. Dollar Index, tracking 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.
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]
Adding to the bull case for the greenback is support from foreign investors as many global traders turned to the U.S. Treasuries. More international investors have piled in to the relatively attractive yields in U.S. government debt as foreign central bank policies have pushed international government yields to near zero or negative in some cases like Japan. [Treasury Bond ETFs Continue to Impress]
Although the greenback has struggle somewhat this year, it does not lack for supporters as some market observers see the U.S. currency as primed for a rebound.
“Deutsche Bank AG, the world’s second-biggest currency trader, expects the greenback to resume its surge this year after slumping in February. The misery index, a measure of inflation and unemployment, fell in November to the lowest in almost six decades, underpinning the currency’s outlook. The jobless rate is forecast to hold at an eight-year low Friday as the Federal Reserve weighs the path of U.S. interest rates,” reports Lananh Nguyen for Bloomberg.
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.
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.
Some market observers recently noted the dollar should rise against the euro this year, but that the common currency’s losses against its U.S. rival will not be nearly as severe in 2016 as was seen last year.
PowerShares DB U.S. Dollar Index Bullish Fund
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.