The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) is off 2.1% year-to-date and perhaps making matters more concerning for the greenback is that UUP is lower by more than 1% since the Federal Reserve unveiled its first interest rate hike of 2017 last week.
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. Other currencies, including the Australian dollar, yen and Canadian dollar have recently been gaining momentum against the greenback.
Eurozone political volatility, Brexit aftermath and Japan’s overt efforts to weaken the yen indicate the dollar should remain strong against the euro, pound and yen. However, safe-haven bets could spur the yen higher against the dollar, if only for a short while.
“Four months after the dawn of the Trump trade, currency investors worldwide are capitulating.
That’s the signal from Bank of America Corp.’s flow data, which blends positioning and sentiment surveys conducted with its hedge fund and real-money clients, and publicly available futures data. The bank’s takeaway is that bullish dollar positions put on after the election have completely disappeared,” reports Andrea Wong for Bloomberg.
A depreciating yen is supporting Japanese markets as a weaker currency bolsters the country’s large export industry. Japan currency-hedged exchange traded funds are rebounding as rising speculation of a Federal Reserve interest rate hike later this month fueled a strengthening U.S. dollar and depressed the yen currency.
Last year, the Bank of Japan extended its stimulus measures, supporting Japanese equities and country-specific exchange traded funds. As part of its expanded stimulus plan, The BOJ decided to increase ETF purchases so its total holdings rose at an annual pace of ¥6 trillion, or $58 billion, up from the current ¥3.3 trillion, Reuters reports.
“The good news is that there isn’t much bullish, or bearish, dollar positions to be unwound, so the next trend gets to start with a clean slate. That also means the U.S. currency, which has almost retraced the 7 percent rally since Donald Trump’s election victory, will be stuck in a range barring any concrete fiscal policy, the kind of game-changing announcement that investors have been waiting for since day one of his presidency,” according to Bloomberg.
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