Drop A Dime On Dollar ETFs

It was not long ago that the PowerShares DB US Dollar Index Bullish Fund UUP was the king of currency exchange-traded funds. This year, thanks in large part to the Federal Reserve's refusal to raise interest rates, the dollar and UUP have almost been reduced to court jester status.

What's Up With UUP?

UUP, the ETF proxy on the U.S. Dollar Index, is lower by 1.6 percent year-to-date and is easily being topped by its yen and euro as global investors have been largely disappointed by monetary stimulus efforts from the Bank of Japan and the European Central Bank.

The $807.1 million UUP, one of the largest currency ETFs trading in the United States, tracks the dollar against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

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Renewed speculation that the Fed is on course for more interest rate hikes this year comes at an ideal time for dollar bulls. Year-to-date, two of the top 10 asset-gathering ETFs are U.S. government bond funds and at least two of the other top asset gainers are funds that benefit as Treasury yields decline, which is to say the dollar's decline this year has lifted other asset classes.

UUP “has actually lost assets via redemption, with about $300 million leaving the fund. But given the recent move through July highs, it would not at all be surprising to see increased interest in this fund in terms of new buyers and/or those eager to hedge the dollar move against other global currencies,” said Street One Financial Vice President Paul Weisbruch in a recent note.

A Different Approach

Another idea for dollar bulls is applying leverage in a bearish euro trade with the ProShares UltraShort Euro (Proshares Trust II EUO), which delivers double the daily inverse returns of the common currency against the dollar.

“EUO has seen mild outflows year-to-date as well, with about $115 million vacating the fund via redemption flows. In spite of year-to-date outflows knocking UUP back below the $1 billion mark in terms of assets under management, it still stands tall as the largest Currency ETF in the U.S. listed marketplace,” added Weisbruch.

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