U.S. Dollar ETFs Gain on Bets of a Shifting Fed Outlook | ETF Trends

U.S. dollar-related exchange traded funds strengthened Friday after the unusually strong July jobs report raised bets that the Federal Reserve will add more interest rate hikes ahead.

On Friday, the Invesco DB US Dollar Bullish (UUP) was up 0.9% and the WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) increased 0.6%.

UUP tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc. The actively managed USDU tracks the USD against a broader basket of developed and emerging market currencies including China, India, South Korea, Switzerland, Australia, Mexico, the United Kingdom, Canada, Japan, and Europe.

According to the U.S. Labor Department, the U.S. economy added 528,000 jobs over July with the unemployment rate dipping to 3.5%, soundly beating economists’ expectations.

“This is a much stronger report than was expected… What it means is the Fed cannot pivot at this point. The Federal Reserve has to continue to hike rates. The folks who are saying let’s take it more slowly are being shoved aside here with this report,” Axel Merk, president and chief investment officer at Merk Investment, told Reuters. “The dollar is stronger against almost everything. The U.S. is performing when the general mood is that the world is slowing down.”

The jobs report is a key data point that Fed officials are monitoring to determine the direction of the central bank’s monetary policy. With strong employment numbers, many fear that investors’ previous bets of a more muted stance could turn to an aggressive monetary policy outlook in the upcoming September meeting.

“Anybody that jumped on the ‘Fed is going to pivot next year and start cutting rates’ is going to have to get off at the next station, because that’s not in the cards,” Art Hogan, chief market strategist at B. Riley Financial, told CNBC. “It is clearly a situation where the economy is not screeching or heading into a recession here and now.”

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