The U.S. dollar and exchange traded products such as 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, have been vexing investors this year.
But even as the Federal Reserve continues standing pat on interest rates, the dollar has recently been strengthening. 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.
The U.S. Dollar Index “moved above resistance in mid-July, set in part by the extreme high on the day the Brexit result was revealed. Its next resistance level is not far away at roughly 98.25 (the index traded at 96.54 Wednesday afternoon). If it can get through that level, the path to recapture last year’s highs in the 100.50 area would be fairly clear. For perspective: The index is about where it was one year ago, but has risen sharply from its five-years-ago level of around 75,” reports Michael Kahn for Barron’s.
In addition to soaring against the British pound following last month’s surprising Brexit decision, the dollar looks poised for more upside against other major currencies, including the Japanese yen.
Related: Are Dollar ETFs Ready to Rally?
Until recently, the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) was one of this year’s best-performing currency exchange traded funds, but that status started to change for the worse recently amid speculation that the Bank of Japan has more easing efforts left in its tank.
The yen and FXY have been bolstered by investors’ thirst this year safe-haven assets, a desire that appears to be growing stronger in the wake of Great Britain’s decision, revealed late last week, to depart the European Union (EU). That is to say betting against the yen has not only been difficult, but wrong.
Related: Japan’s 2016 Monetary Policy: Mistakes and Missed Opportunities
“Two more currencies — the Japanese yen and Canadian dollar — seem to confirm dollar strength. Both are components of the dollar basket. The yen had been heading higher versus the greenback while Canada was trading in line with its southern cousin. Both of those conditions have changed,” according to Barron’s.
PowerShares DB U.S. Dollar Index Bullish Fund
