Will the Dollar Index Continue Its Strong Movement?
Year-to-date performance of the Dollar Index
The dollar index saw downward movement between December 28, 2016, and September 8, 2017. The index fell nearly 11.6% during this period. In the first half of 2017, the dollar index remained on a downward slope and it fell nearly 6.8% during this period.
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The PowerShares DB US Dollar Index Bullish Fund (UUP) and the WisdomTree Bloomberg US Dllr Bullish ETF (USDU), which track the performance of the dollar index, dropped nearly 9.1% and 8.5%, respectively, on a year-to-date basis as of September 27, 2017.
The Fed’s recent move
After a continuous decline since the start of 2017, now the dollar index is showing some upward movement. Since September 11, 2017, the index has been moving up and rose nearly 2% as of September 27, 2017. On September 20, the Fed left its key interest rate unchanged and Fed chair Janet Yellen hinted that the Fed might start quantitative tightening in the near future. She was confident that the central bank’s steps will stimulate growth in the economy (SPY) (QQQ) (IWM).
After the Fed’s announcement of quantitative tightening, the dollar index has moved up. The stronger US inflation and the labor market are also improving investors’ confidence in the dollar index. These factors are also supporting the Fed’s gradual rate hike process. However, a stronger dollar might hamper US exports.
In the next part of this series, we’ll analyze the performance of the financial sector.