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 struggled this year against other exchange traded funds following developed market currencies, but the dollar and UUP could be poised to shed their laggard status.
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.
Obviously, the Fed disappointed on the rate hike front and expectations are the central bank will not boost rates at its April meeting. Most bond market traders expect just two rate hikes this year, down from forecasts of four when the year started.
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.
[related_stories]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]
“Nonetheless, hedge funds have reduced their long positions in U.S. dollar index futures, a basket of several currencies that trade against the greenback,” according to Yahoo Finance.
Bill Baruch, chief market strategist at iiTrader, says in the Yahoo article that the Fed could give way to its more hawkish voices and that there are not many sellers left to punish the U.S. Dollar Index.
“Baruch sees support in the dollar index around the 93 level from where it bounced several times in the past two years,” according to Yahoo Finance.
PowerShares DB U.S. Dollar Index Bullish Fund
