There was hope that the U.S. dollar could be poised to snap out of its lengthy slumber, but the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca:UUP), the tracking exchange traded fund for the U.S. Dollar Index, is off almost 1% over the past week, stoking concerns that the dollar will remain downtrodden for the foreseeable future.
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.
“The greenback sank to a 10-month low Friday, rounding out its worst week since May, as weaker-than-forecast economic data raised doubts about the prospect of additional Federal Reserve tightening this year. Analysts at banks including Mizuho and Wells Fargo say the dollar’s got further to fall as Thursday’s European Central Bank meeting approaches,” reports Bloomberg.
The Federal Reserve has boosted interest rates twice this year, a scenario that is usually dollar positive, but UUP and the U.S. currency have not been responsive to the Fed’s rate hikes.
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 U.S. currency slid against all of its major peers last week, coming under pressure as inflation and retail sales data missed expectations. The dollar’s chances of rising against the euro by year-end have plunged to 4 percent, compared with about 40 percent in January, options markets imply,” according to Bloomberg. “Options traders see plenty of upside for the euro: The total notional amount of large euro calls bought last week was about seven times the tally for euro puts, according to DTCC data.”
The U.S. dollar moved sharply higher against the world’s major currencies in 2014 and 2015 — creating a strong dollar environment in the truest sense of the term. US investors experienced the results of a stronger dollar in the form of tepid economic and profit growth, and muted inflation.
Related: U.S. Dollar ETFs Ready to See Some Green
Despite persistent media headlines to the contrary, the currency backdrop has been more nuanced since early 2016. Indeed, the U.S. dollar, as measured by the Bloomberg Dollar Index, traded in negative territory from mid-February through mid-November 2016, not reaching positive territory until after the November US elections.
“Hedge funds and other speculators boosted net-short bets on the dollar last week to the most since February 2013, data from the Commodity Futures Trading Commission show,” according to Bloomberg.
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