UUP, which 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, is off nearly 4% this month and obviously got no help from the Federal Reserve when the central bank declined to raise interest rates last week. Making life harder on the dollar and UUP is the fact that many traders are now betting that the Fed will only raise interest rates twice this year, down from expectations of four rate hikes coming into 2016.
Macquarie Bank Ltd. and Morgan Stanley, two of the world’s top 10 currency forecasters, are also warning of potential further risks in the U.S. dollar ahead. Goldman feels differently.
“Goldman Sachs Group Inc., one of the world’s top 10 foreign-exchange traders, is holding fast to its bullish-dollar stance, unmoved by the currency’s recent slide. Gains in the greenback against its higher-yielding peers on Monday showed at least some investors agree,” according to Bloomberg.
Bloomberg notes Goldman is of the mind that the Fed will raise rates three times this year.
The U.S. dollar has previously rallied on expectations for a tighter U.S. monetary policy, which would diminish the amount of dollars sloshing around the economy and prop up the greenback against foreign currencies. However, with Fed backtracking on its interest rate outlook, the dollar is losing some of its previous momentum.
Numerous factors could play roles in the dollar’s performance this year, including commodities prices, the Federal Reserve’s plans for additional interest rate hikes and the presidential election. The dollar’s current bull market still is not five years old and knowing that dollar bull markets can last for eight or nine years means UUP could have another year or two of upside ahead of it. In fact, the dollar could rally for another two years.
More international investors have piled in to the relatively attractive yields in U.S. government debt as foreign central bank policies have pushed international government yields to near zero or negative in some cases like Japan. [Treasury Bond ETFs Continue to Impress]
PowerShares DB U.S. Dollar Index Bullish Fund
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
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