Just when it looked like 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, was ready for an extended move to the upside, the dollar is again faltering.
Unfortunately for dollar bulls, some currency market observers see more weakness ahead for the greenback as monetary stimulus efforts from ex-US central banks, namely the Bank of Japan, disappoint global investors.
While the greenback has gotten a post-Brexit lift, the Federal Reserve’s impact on the greenback looms large. Last week, Federal Open Market Committee (FOMC) meeting minutes revealed the Fed is concerned about the U.S. labor market. That is prompting some traders to think an interest rate hike this year is nearly out of the question, making the dollar’s recent rally all the more impressive.
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.
[related_stories]“Last week’s GDP figures were also disappointing, which led to some of the weakness in the greenback. The US economy only grew at 1.2% in Q2, well short of the consensus estimate of 2.6%. Federal Reserve Bank of Dallas President Robert Kaplan’s Q&A session seemed contradictory at times. On one hand he noted that a rate increase is not off the table, but also noted that the Fed would remain cautious about raising rates when growth was this sluggish,” notes OptionsExpress.
Overseas central banks have implemented low interest rate and even negative interest rate policies, which have helped push down yields across the world – there is almost $8 trillion in global bonds with negative yields.
Related: Currency Hedged ETFs Offer a Smoother Long-Term Ride
The U.S. Dollar Index “has flirted with the 100-day moving average on the downside and a close below the average could be seen as a setback. The recent closes below the 20-day moving average suggest that a near-term high may be in place. The RSI indicator is now at oversold levels, which may be seen as slightly supportive in the near-term,” according to OptionsExpress.
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PowerShares DB U.S. Dollar Index Bullish Fund
