The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), the exchange traded funds proxy for the U.S. Dollar Index, is slightly lower over the past week, but the fund did rise on Election Day, indicating that the greenback could be poised for more upside after market participants come to grips with the outcome of Tuesday’s presidential election.
With equities climbing higher and markets sanguine, the Federal Reserve could have the wiggle room with which to raise interest rates in December, a move that would likely boost the dollar and UUP.
UUP, 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, has been vexing investors for most of this year, but the widely followed currency could finally be poised to deliver a lengthy bull run if the Fed cooperates.
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“Of course, it was election-related news that got the dollar to pull back, and it was election-related news that reversed that slide. When the election results are tallied, it is entirely possible that they will once again dominate the technicals,” reports Michael Kahn for Barron’s.
Looking at the Fed-funds futures, options traders were pricing in a 70% chance of a rate hike in December, compared to a 50% chance a month ago.
A higher interest rate typically supports the U.S. dollar since the currency becomes more attractive to foreign-seeking investors and diminishes the supply of money sloshing around in the markets.
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The actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU) tracks the dollar against a broader group of developed and emerging market currencies in an attempt to outperform the Bloomberg Dollar Total Return Index.
Specifically, the fund’s portfolio is comprised of euro, yen, Canadian dollar, Mexican peso, pound sterling, Australia dollar, franc, South Korean won, Chinese yuan and Brazilian real. The inclusion of emerging market currencies may help USDU outperform the dollar benchmark as emerging assets could underperform in a U.S. rising rate environment.
“The pattern is fairly mature, suggesting a breakout could be only a few weeks away. Given the short-term trend currently in progress, my own read is that the euro still has downside room. A falling euro gives the U.S. dollar a bullish wind behind its back,” according to Barron’s.
For more information on the greenback, visit our U.S. dollar category.
PowerShares DB U.S. Dollar Index Bullish Fund