The U.S. dollar and currency-related exchange traded funds are regaining ground after Federal Reserve officials fueled speculation that the central bank could raise interest rates at its next meeting.
Meanwhile, 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, rose 0.5% Wednesday. UUP was up 1.5% after rallying in four sessions.
The actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU), which tracks the USD against a broader basket of developed and emerging market currencies, also increased 0.5% Wednesday and was 1.5% since last week’s low.
The greenback is recovering from a precipitous sell-off last week in response to the Fed’s dovish tone on the global economy and its downwardly revised rate hike schedule for the year amid the uncertainty.
Now, some Fed officials have added to expectations that the central bank could raise rates soon. Chicago Fed President Charles Evans believes that employment and inflation rates could soon hit Fed targets, reports Chelsey Dulaney for the Wall Street Journal.
The U.S. unemployment rate was at an eight-year low of 4.9% for February – the Federal Open Market Committee estimates a long-term normal rate of unemployment ranged from 4.7% to 5.8% and a median value of 4.8%, according to the Federal Reserve. The core CPI rose 2.3% in February year-over-year, the largest annual increase since May 2012 – the Fed has a 2% inflation.
Additionally, Philadelphia Fed President Patrick Harker also pointed out that the upbeat U.S. outlook increasingly favors higher interest rates. Harker also leans toward more aggressive interest rate hikes relative to other Fed officials.
[related_stories]Consequently, the growing chorus of policy makers for higher interest rates has led market observers to believe the Fed could tighten its monetary policy as soon as its April meeting.
”The parade of Fed speakers that we’ve seen have suggested that the Fed’s extreme dovishness was unfounded,” Mazen Issa, senior foreign-exchange strategist at TD Securities, told the WSJ. “It’s adding more fuel to the fire that perhaps the market had gone too far in one way.”
Consequently, if the Fed does decide to hike rates, 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.
PowerShares DB U.S. Dollar Index Bullish Fund