The Dollar Could Easily Get Stronger

The Dollar Could Easily Get Stronger

By Ian Dyer

Ever since the start of 2017, the dollar has been in an almost constant decline.

In fact, the PowerShares DB U.S. Dollar Bullish ETF (NYSE: UUP) has dropped over 12% from its 2017 highs, despite a 2% gain.

UUP is an exchange-traded fund that measures the dollar against six other currencies. When the dollar strengthens relative to the others, the price of UUP goes up.

Generally, the dollar is seen as a safe haven, somewhere for investors to put their money in times of market uncertainty. And since we have seen a market that went straight up over a 15-month period, there was less demand for safety assets like the dollar.

But that can only last so long. Right now, there is a fear of inflation in the markets due to higher employment and wages.

When the economy is strong, inflation usually follows. That's because when people make more money, they spend more. And when more money is spent, there's more in circulation, and the excess supply makes each dollar less valuable.

However, inflation fears are likely overblown due to the fact that we haven't seen an economy this strong since before the financial crash.

When inflation gets too high, it sends production costs up and business slows. But right now, inflation remains steady around 2%.

That may seem high, as it was around 0% for all of 2015 and some of 2016, but in the big picture, it's normal. In fact, it's seen as healthy.

As a reference, inflation had gotten over 4% in 2005 and 2006, right as the economy showed signs of slowing.

Many are wondering how to profit from this analysis.

Demand for the Dollar

The dollar could easily get stronger from here as well.

Right now, a huge part of the world's economy has extremely low interest rates. Much of Europe, for example, is under 1%, and they aren't planning on raising rates aggressively anytime soon.

The United States, however, has a rate of 1.5%. This isn't high, but we could easily see that go over 2% this year if the economy stays healthy.

That would also increase the rate of government bonds, which is 2.86% right now. As the rate get higher, international investors will begin to buy more U.S. bonds, which increases demand for the dollar and sends its value up.

How to Profit

Even though the only way to directly invest in the strength of the dollar is through UUP, there are other ways with higher return potential.

One is buying call options on the UUP fund, but that's much riskier, as you could lose your whole investment.

Another way would be buying a leveraged ETF against a different currency.

For example, the VelocityShares Daily 4X Long USD vs. EUR ETF (NYSE: DEUR)returns four times the percentage that the dollar appreciates against the euro.

There are also similar funds that produce the return of the dollar against other currencies, like the pound (NYSE: DGBP), the yen (NYSE: DJPY) and the Australian dollar (NYSE: DAUD).

Ian Dyer is one of the top internal analysts for Banyan Hill Publishing. He graduated from Duquesne University with a degree in finance. He has passed the Level 1 and 2 CFA exams to become a Level 2 CFA, and will soon complete the final Level 3 exam. Becoming a Level 3 CFA demonstrates an analyst's thorough command of economics, accounting, portfolio management, stock and bond valuation, and more. For the last few years, Ian has utilized these skills to analyze valuable investment recommendations for Banyan Hill's 300,000 readers. Read more here.

Article Source:  The Dollar Could Easily Get Stronger

Post a Comment

Informations From: Taun17

Previous Post Next Post
  • The Unfailing Helper

    Today : The Unfailing Helper Jesus answered, “You unbelieving and perverse generation! How much longer must I be with you? How much longer must I endure you? Bring him here to me.” — Matt 17:17 NET The disciples had failed in their effort to cast out the demon, but there yet ... Readmore

  • Anathema (Rejected by God)

    Anathema (Rejected by God) Meaning Anathema refers to any person, thing or process which is completely and utterly rejected by God. The word comes from the New Testament and it’s derived from the Greek “ana’thema” which means destined for damnation. This word is almost exc... Readmore

  • Sometimes I Don't Like People

    John 13:2-5 The evening meal was in progress, and the devil had already prompted Judas, the son of Simon Iscariot, to betray Jesus. Jesus knew that the Father had put all things under his power, and that he had come from God and was returning to God; so he got up from the meal, t... Readmore

  • Beginning to Sink

    Beginning to Sink Beginning to sink, he cried, saying, Lord, save me–Mat 14:30 The Pathos of a Wasted Life There are two sights in human life which fill the heart with profound sorrow. The first is that of a person who has sunk. When we see a face made loathsome by iniquity and think... Readmore

  • The Beauty Of Dreams

    A little boy named Johnny used to hang out at the local corner market. The other boys teased him constantly, saying that Johnny was two bricks shy of a load or two pickles short of a barrel. Puzzled about their behavior, the store owner eavesdropped on their conversation one day. Johnny stood silent... Readmore

  • Dear Diary

    DON’T TRY TO JUSTIFY OR EXCUSE UNLOVING BEHAVIOR. Bible Reading of the Day: Read Romans 12:9, 17-21. Verse of the Day: “Don’t let evil get the best of you, but conquer evil by doing good” (Romans 12:21). Monica said good night to her mother and closed her bedroom door... Readmore

  • No Pain, No Gain

    Bible Reading: Hebrews 4:12-13 The word of God is full of living power. It is sharper than the sharpest knife, cutting deep into our innermost thoughts and desires. Hebrews 4:12 “HOW BAD is it, Doc?” the patient asks. “Tell me the truth.” ”I&... Readmore

  • ARE YOU PREPARED AND WAITING FOR THE BRIDEGROOM?

    OPENING PRAYER In Jesus name, I will not be a cast away and I will inherit eternal rest in heaven. Help me Lord God. Amen ARE YOU PREPARED AND WAITING FOR THE BRIDEGROOM? First Bible Meditation: Matthew 25:1-4 At that time the kingdom of heaven will be like ten virgins who took their lamps and... Readmore

  • Jesus Walking on the Sea

    Jesus Walking on the Sea And in the fourth watch of the night Jesus went unto them, walking on the sea–Mat 14:25 Jesus Felt the Necessity of Being Alone with God It had been a day of trial and stress for Jesus, and when the sun set, the danger was not over. There were terrible risks... Readmore

  • Walk And Not Faint

    Hardships are like labor pains. They can come at you all of a sudden, without notice and without warning. We suffer hardships at all times in varying degrees. Children of God suffer hardships during obedient and disobedient times of our lives. There are hardships in raising a child with autism. Hard... Readmore