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Doting On Dollar ETFs

October 19, 2017 8:19 am
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The U.S. dollar remains a dud among developed currencies in 2017, but there the downtrodden greenback has the potential to pare its losses into the end of the year. The PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) is up nearly 2 percent over the past month, a move that has trimmed the exchange-traded fund's year-to-date loss to 8.3 percent.

UUP is the tracking ETF for the U.S. Dollar Index, tracking the dollar's movements against the the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. Dollar bulls have been punished by a lack of upside action in U.S. Treasury yields despite two interest rate hikes this year by the Federal Reserve.

With the chances of a December rate hike increasing, dollar bulls will once again be relying on the Fed for support. The implied probability of a December rate hike has jumped to 87 percent from 78 percent last week, according to Rareview Macro. Readings above 70 percent are considered extreme with just two months to go.

More Fed Impact

Swirling speculation surrounding whom will replace Janet Yellen as Fed chair is also seen as a potential catalyst for the dollar.

“So similar to how we connected the dots with Professor John Taylor becoming a front-runner for the Federal Reserve Chair, we want to highlight something else that stands out,” said Rareview Macro founder Neil Azous in a out Wednesday.

Investors have recently been displaying some enthusiasm for the dollar via ETFs as UUP has added $33.6 million in new assets over the past month, according to issuer data. That puts the dollar fund among the top 15 PowerShares ETFs for new assets added over that period.

China Concerns

Another issue for the dollar is, not surprisingly, China. Actually, several emerging Asia currencies have been stronger against the dollar for a while.

“Bloomberg World Currency Ranker (WCRS) shows the performance for Asian currencies since President Trump was elected. As you can see, Taiwan (TWD) and both the onshore and offshore Chinese yuan (CNH, CNY) have outperformed the US dollar by a fair margin since the election,” said Azous.

The WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSE:USDU), which measures the dollar against a broader basket of currencies than just developed market fare, is up 2.3 percent over the past month. USDU features some exposure to the dollar against the offshore yuan.

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