Don't Expect Much Out of Dollar ETFs in 2018

As has been widely documented, the dollar is a dud among major developed market currencies this year. Just look at the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), the exchange traded fund proxy for the U.S. Dollar Index (DXY), which is down 7.6% year-to-date.

UUP tracks movements against a basket of currencies including euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The U.S. dollar is strengthening on a number of factors. For instance, the U.S. index of business conditions rose to a three-year high, adding to the improving U.S. economic outlook.

Investors betting on a dollar rebound in 2018 may want to temper those expectations.

“The US dollar has strengthened in recent months on expectations of a December rate hike by the Federal Reserve (Fed). We do not expect strengthening to be the longer-term trend, however. Strong global growth, resulting in less accommodative global central bank policies against a backdrop of gradual Fed policy normalization, is likely to drive the US dollar weaker over the longer term,” according to recent research from Invesco.

The rising euro has also been a problem for the dollar, but some market observers believe the common currency is set to pullback. However, other market participants believe the common currency can continue surging against the greenback.