It seems like everything is going right for the U.S. dollar investor. Global inflation, a risk-off sentiment, and rate hikes from the U.S. Federal Reserve are pushing the greenback to new heights.
“The soaring dollar is propelling the global economy deeper into a synchronized slowdown by driving up borrowing costs and stoking financial-market volatility — and there’s little respite on the horizon,” Bloomberg reported. “A closely watched gauge of the greenback has risen 7% since January to a two-year high as the Federal Reserve embarks on an aggressive series of interest-rate increases to curb inflation and investors have bought dollars as a haven amid economic uncertainty.”
Should the dollar continue to push higher, investors can play the move with the Invesco DB US Dollar Bullish (UUP ). UUP tracks the price movement of the U.S. dollar against a basket of currencies, including the European Union’s euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc.
If bearishness plays out and the Fed becomes less hawkish in the coming months, then it could be an ideal opportunity for the Invesco DB U.S. Dollar Index Bearish Fund (UDN ). It essentially does the opposite of UUP, giving investors a chance to capture the greenback when it languishes.
Dollar Hit 20-Year High
The U.S. dollar reached a 20-year high over a week ago as the capital markets expected a 50-basis point rate hike by the Fed amid rising inflation. If inflation continues to run hot, it should provide more tailwinds for the dollar with the expectation of more rate hikes.
“Right now, it seems like you have a trifecta of drivers here that are going to keep providing the dollar with solid footing,” said Edward Moya, senior market analyst at Oanda in New York. “There’s this belief that you are not going to see any of the major risk factors resolved, definitely not this week, and that is probably going to make it complicated for ending the dollar’s reign.”
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