U.S. Dollar ETF Could See More Downside

The U.S. dollar has been one of this year’s most disappointing developed market currencies as highlighted by a decline of nearly 2% for the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP). Unfortunately, some market observers believe the greenback has more downside 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. Other currencies, including the Australian dollar, yen and Canadian dollar have recently been gaining momentum against the greenback.

Heading into 2017, many bond market participants were betting the Fed would raise interest rates three times, but some market commentators believe two is the appropriate number of rate hikes this year. The Fed boosted rates last month for the first time this year and the third time in 15 months, but a dovish tone following the March meeting muted the dollar’s reaction.

“The U.S. Federal Reserve is signaling at least two 25-basis-point rate hikes before the end of this year. Heck, maybe more. Boston Fed President Eric Rosengren said the central bank should raise rates three more times this year. Higher rates mean that Treasuries pay more interest. So you can get more interest on bonds denominated in U.S. dollars than in, say, euros,” according to ETF Daily News.