The US dollar index
In the last two years, the US dollar index (UUP) has strengthened. The Fed hiked the rate for the first time in a decade in December 2015. The dollar index became much stronger at that time. However, the Fed’s dovish stance since February 2016 has weakened the dollar index. Now, the dollar index is on the rise again.
The reasons behind John Schlifske’s statement
John Schlifske believes the US dollar will strengthen more because of the following factors:
The negative interest rates in major developed markets (EFA) such as Europe (VGK) (EZU) and Japan (EWJ) (DXJ) make US government debt more attractive. The US ten-year Treasury yield is hitting new lows. It was at 1.4% as of 1:15 PM EST on July 5.
Bill Gross believes this yield could fall further and could touch a low of 1.25%. He also said that the 10-Year Treasury Yield Is in Danger. Investors are turning to US government debt (TLT) (SHY), which is making the US dollar stronger. If this trend continues, we’ll see the dollar index rise even more.
In the next part of this series, we’ll analyze John Schlifske’s view on the Federal Reserve’s next rate hike.