The US dollar sets the stage for more optimism

LLow interest rates and a lukewarm dollar could only last that long, and now optimism could be back for the greenback, which bodes well for exchange-traded funds (ETFs) such as the Invesco DB US Dollar Bullish (UUP).

Looking at the ICE US Dollar index, a dose of volatility due to inflation fears increased in mid-April, pushing the index past the 3.6% mark. The index has since come back down to earth, but lingering inflation fears could pave the way for a further rise.

Meanwhile, trade action in UUP sins on the side of optimism. UUP tracks the price movement of the US dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

“Flirting with its 52-week low at $ 24.09 (1/6/21) earlier last week, UUP has drawn bullish call buyers into the course,” a GTS Mischler ETF weekly report noted by E-mail. The July 24 calls were traded twice last Wednesday and Thursday, more than 55,000 contracts in total and UUP broke recent lows. The $ 386 million fund saw weak asset growth on the fiscal year (> $ 22 million). “

Inflationary pressure locks gold and raises dollar

The dollar’s counterweight asset is gold. Inflationary pressures are blocking a bullish move for gold as rate hike expectations rise.

“Further signs of inflationary pressures could soften the appetite for gold … However, upward gains could be limited by an appreciating dollar if inflation fears drive up US Treasury yields,” Lukman Otunuga said, senior research analyst at FXTM.

The Federal Reserve has been relatively silent on future interest rate policy, but the prevailing feeling is that an improving economy will justify rate hikes at some point. Higher yields can stifle the appetite for gold in the future while rate hikes can provide favorable winds for the dollar.

“There is a feeling in the market that the Fed has subdued the market by saying inflation is transient, so that’s the whole point right now whether it can be achieved or not,” Ole Hansen said. , Head of Raw Materials Strategy at Saxo. Bank.

Gold price chart in US dollars

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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