PowerShares DB U.S. Dollar Bullish (UUP) traded near $22.25 per share at the beginning of September, 2012. One year later, UUP trades near the same share price. In other words, over the course of the last 12 months, the U.S. dollar has not changed much against a basket of world currencies.
Why is the dollar’s ability to hold its value a venerable topic? For one thing, the Federal Reserve’s aggressive policy of quantitative easing 3.0 (”QE3″) had been expected to devalue the greenback. Indeed, it was one year ago when Bernanke explained that the U.S. central bank would buy $85 billion in U.S. bond obligations with electronically printed dollars every month. In spite of the existence of an additional $1 trillion today, wage inflation did not accelerate dramatically and the dollar did not depreciate significantly. In its upcoming decision on whether or not to slow the electronic printing press, then, the Fed may not be forced to press ahead with actual “tapering ” in September.
That said, investors are selling income investments first and asking questions later. Over the last five days, iShares 7-10 Year Treasury (IEF), Vanguard Utilities (VPU) and iShares Residential REITs (REZ) are down 1.4%, 1.5% and 1.9% respectively. In other words, the prospect of military action in Syria has not been enough for investors to seek shelter inside of income investments.
In contrast, the prospect of “de facto” tighter monetary policy in the U.S. has encouraged investors to seek income and growth abroad. For example, the European Central Bank (ECB) does not appear to be transitioning to a higher rate environment; “Mum” is the world at the Bank of England (BOE) as well. It follows that momentum can be seen in places like iShares Global Telecom (IXP) rather than in its domestic counterpart, Vanguard Telecom (VOX). The IXP:VOX price ratio shows a noteworthy shift in interest to the global asset.