It's Not All Green for Dollar ETFs

The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) returned more than 3% last year, making it one of 2016’s best-performing developed markets currency exchange traded funds. With 2017 still fresh, some traders are concerned the benchmark dollar ETF has rallied too far too fast.

Expectations that the Federal Reserve will boost interest rates multiple times this year are prompting some investors to speculate the dollar has more upside ahead of it.

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. 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. Importantly, UUP could still offer investors significant upside even after its recent sharp rally.

“After a big rate rally, sliding bond yields have recently put pressure on the dollar, and Gordon expects this trend to continue. From a technical standpoint, the trader believes that an intraday chart of the dollar-tracking ETF signals that the dollar rally has run its course,” according to CNBC.

Expectations that the U.S. President-elect Donald Trump would help U.S. economic growth with stimulus measures also supported the rise in the dollar.