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Fed Policy Will Maintain Strangle Hold on U.S. Dollar ETF


The U.S. dollar exchange traded fund has been weakening for much of the year as fiscal problems and accommodative Fed measures weighed on the greenback. Nothing appears to be changing anytime soon.

The PowerShares DB US Dollar Index Bullish Fund (UUP) was down 3.0% over the past three months and declined 1.7% year-to-date. [Technicals Say Greenback Will See Red]

“There is nothing to suggest that the recent trend of a falling dollar will subside any time soon,” David Fabian, Managing Partner at FMD Capital Management, said. “I am continuing to advocate avoiding this space in favor of more traditional asset classes such as stocks and bonds.”

On Wednesday, the Federal Reserve stated that it will maintain its $85 billion monthly bond purchasing program, citing additional need to support the economy, especially with the growing fiscal problems, Bloomberg reports.

“The recovery in the housing sector slowed somewhat in recent months,” the Federal Open Market Committee said. “Fiscal policy is restraining economic growth.”

Nevertheless, the U.S. dollar is part of a global foreign exchange market, and any weakness overseas could push foreign investors back to the greenback.

“A breakdown in international markets might send investors fleeing to purchase the dollar as a safer alternative to foreign currencies,” Fabian added.

The PowerShares Dollar ETF tracks the price movement of the U.S. dollar against a abasket of six major world currencies – the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

ETF investors can also bet against the U.S. dollar with the PowerShares DB US Dollar Index Bearish Fund (UDN) , which tracks the inverse, or short, performance of the U.S. dollar against the same basket of six major currencies. UDN is up 2.6% over the past three months and up 0.1% year-to-date.

PowerShares DB US Dollar Index Bullish Fund

For more information on the greenback, visit our U.S. dollar category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.