The U.S. dollar-related exchange traded fund continued to climb Friday, with the USD touching its 13-year high, as traders raised bets that a Donald Trump presidency would bolster growth and trigger a tighter Federal Reserve monetary policy.
The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) rose 0.3% Friday and increased 2.2% over the past week. UUP tracks the price movement of the U.S. dollar against a basket of developed market currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc,
Meanwhile, the U.S. Dollar Index was hovering around 101.2 and at one point was trading around its highest since April 2003. The USD is also on track for its 10th consecutive day of gains, or its longest winning streak since 2012.[related_stories]
Market observers argue that Trump’s economic policies, notably a potential fiscal stimulus package, will continue to strengthen the U.S. dollar and cause investors to exit government bonds on expectations that the Federal Reserve would have to hike interest rates faster-than-expected to contain inflation, reports Jamie Chisholm for the Financial Times.
Fed chair Janet Yellen stated on Wednesday that an increase in short-term interest rates would “become appropriate relatively soon.”
“The dollar is rampant,” Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA, told Bloomberg. “It’s just this assumption, and for now it still is an assumption, that the U.S. is going to reflate next year from fiscal policy. Yellen’s comments yesterday probably helped the dollar.”
Further supporting the case for a rate hike, the weekly jobless claims declined to a four-decade low and U.S. housing starts reached a nine-year high. Options traders are now betting on a 98% chance the Fed could hike rates in December, up from a 80% chance a week ago and less than 65% a month earlier.
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PowerShares DB U.S. Dollar Index Bullish Fund