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 held hostage by the Federal Reserve’s refusal to raise interest rates this year.
Dollar disappointment may be near an end as recent commentary from Fed Chair Janet Yellen and other members of the U.S. central bank indicate an increasing level of comfort with the idea of raising borrowing costs sometime over the next several months.
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.
Currency ETFs try to reflect the performance of a single currency or a basket of currencies. ETF providers structure their currency funds to try to reflect the movements of a currency in a foreign exchange market by holding foreign currencies directly, foreign currency denominated short-term debt instrument, derivatives or swaps.
“The greenback snapped a two-week losing streak after Fed Chair Janet Yellen said the case to raise interest rates is getting stronger, while Vice Chairman Stanley Fischer indicated an increase is possible in September. Those comments follow statements by officials in recent weeks that may persuade skeptical investors that the central bank is getting closer to tighter policy,” reports Lananh Nguyen for Bloomberg.
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