Between the Federal Reserve not raising interest rates and rebounding commodities prices, it has been a rough 2016 to this juncture for the U.S. Dollar Index and 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.
Investors have heard plenty of times this year about UUP and the Dollar Index being poised to rally only to be left disappointed. However, this time could be different, particularly as some European currencies are seen retreating against the greenback.
Related: Are Dollar ETFs Ready to Rally?
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.
“Looking at a daily chart of the U.S. dollar ETF UUP, Todd Gordon of TradingAnalysis.com starts off by pointing out that options on the UUP have grown more expensive, giving traders an attractive opportunity to sell them,” according to CNBC.
[related_stories]The dollar is expected to continue rallying against the British pound in the run-up to the June 23 Brexit vote. The CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) has been under pressure this year on uncertainty over a referendum vote over whether or not the U.K. should stay with the E.U.
Related: Sterling ETF Finds Footing Ahead of Brexit Vote
Other major currencies are also seen as vulnerable to near-term weakness against the dollar. The CurrencyShares Australian Dollar Trust (NYSEArca: FXA), which tracks the Aussie against the U.S. dollar, is off nearly 6% over the past month. FXA could be increasingly vulnerable as the monetary policies of the Fed and the Reserve Bank of Australia continue diverging. RBA recently cut Australia’s benchmark interest rates to a record low.
The CurrencyShares Japanese Yen Trust (NYSEArca: FXY), which until recently had been one of the best-performing developed market currency ETFs, could see declines if investors opt for riskier assets.
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.
For more information on Currency ETFs, visit our Currency-Hedged category.
PowerShares DB U.S. Dollar Index Bullish Fund
