The dollar has been gaining strength amid rising rates, and the latest catalyst for the greenback recently was strong jobs data from a lower unemployment rate.
“U.S. job data showed the unemployment rate falling to a new two-year low of 3.6% and wages re-accelerating, positioning the Fed to raise interest rates by a hefty 50 basis points in May,” a CNBC report notes.
The economy continues to show signs of improvement from the pandemic, and whether it’s risk-on or risk-off in terms of investor sentiment, the dollar is seeing strength in both scenarios. The U.S. Federal Reserve recently raised the federal funds rate by 25 basis points, which is also helping the dollar to climb.
On the other end of the spectrum, the dollar’s strength has been pushing down prices for gold. As the capital markets eye more rate hikes, it’s taking the air out of the bullish gold balloon.
“Expectations for a rate hike are driving gold lower, said Bart Melek, head of commodity strategies at TD Securities, as that would translate into higher opportunity cost of holding non-yielding gold,” CNBC reports.
2 Ways to Play the Dollar
Invesco has a pair of ways to play the dollar whether investors feel bullish or bearish about the greenback. It gives tactical exposure for a portfolio that wants to hedge against inflation or profit when the dollar falters.
For a bullish sentiment, there’s the Invesco DB U.S. Dollar Bullish (UUP ) 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.
For bearishness, investors can choose 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.
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