Inklings Of A Dollar ETF Rally

Investors have been flocking to safe-haven assets this year, but in the flight to safe currencies, the U.S. dollar has not benefited. The PowerShares DB US Dollar Index Bullish Fund UUP, which serves as an exchange-traded fund proxy for the U.S. Dollar Index, is off slightly year-to-date and has bled $250.5 million in assets.

To be fair, UUP climbed nearly 1.5 percent last week, and while that is not a jaw-dropping gain, it could be the start of a new rally for the ETF. If that is the case, it comes as some traders are giving up on bullish dollar positions, as highlighted by UUP's nearly $76 million of outflows over the past month.

“Speculators reduced wagers on dollar strength to the least since July 2014 last week, missing the currency’s best rally in two months after better-than-forecast economic data boosted the odds of tighter Federal Reserve policy this year,” according to Bloomberg.

Renewed speculation that the Fed is on course for more interest rate hikes this year comes at an ideal time for dollar bulls. Year-to-date, six of the top 10 asset-gathering ETFs are U.S. government bond funds and at least two of the other top asset gainers are funds that benefit as Treasury yields decline, which is to say the dollar's decline this year has lifted other asset classes.

Related Link: Europe ETF Merits Consideration

UUP tracks the performance of the greenback against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. Between Brexit speculation and hopes for monetary easing from the European Central Bank, which could spur more of the same from the Swiss National Bank, a bull case can be made for UUP and the dollar. That would catch some traders off-guard.

“Bets on gains by the greenback versus eight major peers outweighed those on a slump by a net 116,351 contracts in the week ended Feb. 23, figures from the Commodity Futures Trading Commission showed. Bullish yen bets versus the dollar climbed to a net 52,734 contracts, a four-year high,” according to Bloomberg.