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 nearly 1% last week and with speculation running high that the Federal Reserve will raise interest rates in June, currency markets may be pricing in upside for the greenback.
The dollar and UUP have been weakening this year after the Federal Reserve signaled it would take a gradual approach toward interest rate normalization, dashing bets that a tighter monetary policy would support the greenback.
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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. That theme could be renewed as June appears to be the right time for the Fed to finally boost rates again.
However, the dollar could strengthen as analysts attribute the seasonal effect to selling in stocks and commodities that typically occur in May. The sell-off would drive demand for safe-haven assets, like the U.S. dollar.