The Invesco DB US Dollar Index Bullish (UUP) exchange-traded fund invests in U.S. The UUP has $1.3 billion in assets under management and it averages more than 3.8 million shares of daily trading volume. A strong dollar can be bad news for U.S. companies that do business overseas. If the value of the U.S. dollar is high, companies lose revenue when they convert international sales into U.S. dollars. There are a number of reasons the dollar gains strength in the market. In the past year, the Fed has raised interest rates eight times to a current target range of between 4.5% and 4.75% in an aggressive attempt to curb inflation.
After each calculation the program assigns a Buy, Sell, or Hold value with the study, depending on where the price lies in reference to the common interpretation of the study. For example, a price above its moving average is generally considered an upward trend or a buy. The dollar index (DXY00) Wednesday fell by -0.86% and posted a 2-week low. Strength in the euro and the yen on Wednesday undercut the dollar. Also, Wednesday’s mixed US economic news pushed T-note yields lower, weakening the dollar’s interest rate differentials. I don’t think you’re going to have a weakening of the dollar until you have more convergence in growth or in monetary policy.
What Currencies Are in the USDX Basket?
The top stocks Bank of America found were helped by the rising dollar include Huntington Ingalls Industries (HII), Darden Restaurants (DRI) and Clorox (CLX). In contrast, certain stocks have a track record of being helped by the rising dollar—we name names later on. Highlights important summary options statistics to provide a forward looking indication of investors’ sentiment. Early this week, I had the privilege of moderating a panel discussion on global grain supply and demand and outlook at Barchart’s Grain Merchandising & Technology Conference in Orlando. The various market sectors are showing an interesting reaction to news the US is moving forward with a second Donald Trump administration.
- Finally, investors can indirectly bet on the U.S. dollar by betting against weaker international currencies.
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- A strong dollar means other global currencies have been relatively weak, which Lynch says exacerbates inflationary pressures and financial market volatility.
- The exchange also offers USDX options contracts with six different expiration dates, ranging from one month to one year in the future.
- However, the strong dollar is not an exogenous shock, it is an endogenous reaction of the market to the fact that the US is doing better than the rest.
- The Invesco DB US Dollar Index Bullish (UUP) exchange-traded fund invests in U.S.
Because the U.S. dollar is the world’s reserve currency and is generally considered a safe haven during periods of economic instability, investors have also been piling into the dollar for safety and security. A strong dollar means other global currencies have been relatively weak, which review what works on wall street Lynch says exacerbates inflationary pressures and financial market volatility. The USDX allows traders and investors to monitor the purchasing power of the U.S. dollar relative to the six currencies included in the index’s basket. Dollar Index includes the dollar’s relative value compared to a basket of foreign currencies. Initially, it included the Japanese yen, British pound, Canadian dollar, Swedish krona, Swiss franc, West German mark, French franc, Italian lira, Dutch guilder, and Belgian franc. In addition, there are several ways for investors to profit directly from the rising dollar.
Goldman Sachs estimates S&P 500 companies generate about 29% of their total revenue from outside the U.S. Not surprisingly, analysts have tamped down S&P 500 revenue growth estimates for 2023. According to Yardeni Research, the consensus estimate for the fourth quarter is +9%. The higher interest rates rise, the more demand there is for U.S. dollars from foreign investors, and that applies further upward pressure on the USDX. “A combination of higher inflation, the Fed’s aggressive tightening campaign and a global search for yield have all contributed to the strong dollar,” Lynch says.
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That happened in 1999 when the newly-created euro replaced several European currencies previously in the index, such as Germany’s predecessor currency, the deutschmark. There are several popular exchange-traded funds (ETFs) that track the USDX. UUP has more than $2 billion in assets under management and is extremely liquid, averaging more than 4.1 million shares of daily trading volume.
The higher interest rates rise, the more demand for the dollar there is from international investors seeking yield. We also look at an exchange-traded fund whose value is directly linked to the dollar by tracking the U.S. Dollar Index (USDX), which measures the value of the greenback versus a basket of six key foreign currencies. This is to be expected since the average includes data from the previous, lower priced days.
Negative weightings indicate that the USD is the quote currency. These financial products currently trade on the ICE Futures exchange, formerly known as the New York Board of Trade. Traders and investors can use them to hedge general currency moves or to speculate. The contents of the basket of currencies have only changed once.
Barchart Technical Opinion
“Until dollar strength abates, we fail to see the catalyst for a sustainable recovery in global risk assets,” Lynch says. As a result, its calculation doesn’t include emerging market currencies, like the Mexican Peso (MXN) or commodity currencies. It also doesn’t include China’s renminbi (CNY), even though China is now the largest Forex marketer U.S. trading partner by a wide margin.
Consequently, the index does not fully reflect present-day U.S. trade. The six currencies included in the USDX are often referred to as America’s most significant trading partners. The Fed’s top priority in 2022 has been bringing down inflation from multi-decade highs, and its best weapon has been raising interest rates. The Fed has inside bar trading strategy already raised the fed funds rate to a range between 3% and 3.25%. In fact, the Federal Open Market Committee (FOMC) has issued three consecutive large rate hikes of 75 basis points.
Changes in the dollar’s value can have a big impact on a company’s international sales, since it can erode their competitiveness in any market whose currency is cheaper than the greenback. New Highs/Lows only includes stocks traded on NYSE, NYSE Arca, Nasdaq or OTC-US exchanges with over 5 days of prices, with a last price above $0.25 and below $10,000, and with volume greater than 1000 shares. The Barchart Technical Opinion widget shows you today’s overall Barchart Opinion with general information on how to interpret the short and longer term signals. Unique to Barchart.com, Opinions analyzes a stock or commodity using 13 popular analytics in short-, medium- and long-term periods. Results are interpreted as buy, sell or hold signals, each with numeric ratings and summarized with an overall percentage buy or sell rating.
PCE and personal income bode well for stocks
“Foreign currency conversion can have a positive or negative effect on operating results. Now, the dollar index is very elevated and will ultimately serve as a headwind for overseas business of U.S. corporations,” Bevins says. The USDX is down 2.5% year to date as of May 12, and it has lost 1.9% over the past 12 months. The Barchart Technical Opinion rating is a 72% Buy with a Strengthening short term outlook on maintaining the current direction. A stronger dollar post-election is sending the precious metal lower. However, the stock, which has been a darling of Wall Street this year, fell after the news.