Dollar Hits a Two-Year High as Rising Rates Loom

Of course, inflation is certainly playing a role in the dollar’s strength. Rising consumer prices are forcing the U.S. Federal Reserve to turn up the rate-hiking dial, which is expected to continue throughout 2022.

“The dollar is reaching fresh nearly two-year highs, lifted by looming interest-rate increases from the Federal Reserve, strong U.S. growth and geopolitical jitters overseas,” the Wall Street Journal reports. “The Wall Street Journal Dollar Index, which measures the U.S. currency against a group of 16 others, has climbed in 13 of 15 sessions to its highest levels since May 2020. The dollar has gained more than 10% versus the Japanese yen this year and more than 5% against the euro. The index slipped 0.6% Wednesday.”

Exchange traded fund (ETF) investors looking for an opportunity can use the Invesco DB US Dollar Bullish (UUP A) to capture the dollar’s upward momentum. 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.

The capital markets are expecting more 25 basis point rate hikes throughout the year. As such, UUP could be the move to make throughout 2022 as the narrative of transient inflation has fallen to the wayside.

“There is indeed history that when the Fed plans for hiking and tightening, the buck ends up losing during those cycles, but at the moment there is little in optimism out there that can knock the buck down,” said Juan Perez, director of FX trading at Monex USA in Washington.

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