With the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), the tracking exchange traded fund for the U.S. Dollar Index, down 9.2% year-to-date, it can be said being bearish on the dollar has been a pretty easy trade for currency market participants.
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.
As it has been easy (and rewarding) to be anti-dollar this year, some market observers believe that trade could be overdone.
“Currency markets are of particular concern right now to Matt Maley, equity strategist at Miller Tabak, who said in an interview Thursday that he is watching the dollar/euro relationship quite closely,” reports CNBC.
Conversely, the CurrencyShares Euro Currency Trust (NYSEArca: FXE), which tracks the euro’s price movements against the dollar, is one of this year’s best-performing developed market currency exchange traded funds.
The dollar, “which has declined over 9 percent year to date, has weakened relative to foreign currencies as the likelihood of future interest-rate hikes from the Federal Reserve has fallen, along with the chances of pro-growth policies passing in Washington. Maley pointed to the Daily Sentiment Index, which measures futures traders’ sentiment, flashing very bearish sentiment toward the dollar,” according to CNBC.
Related: Dollar Downturn Could be Nearing its End
Year-to-date, investors have pulled nearly $227 million from UUP, a total exceeded by just three other PowerShares ETFs.
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 in March 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 dollar has struggled following the June rate hike as well.
For more information on the USD, visit our U.S. dollar category.