The dollar could easily strengthen


Since the beginning of 2017, the dollar has been falling almost constantly.

Actually, PowerShares DB Bullish US Dollar ETF (NYSE: UUP) fell by more than 12% from the highest levels in 2017, despite an increase of 2%.

The UUP is a stock exchange fund that measures the dollar against six other currencies. When the dollar strengthens against others, the price of UUP rises.

In general, the dollar is seen as a safe haven, somewhere for investors who can put money in a time of market uncertainty. And since we saw a market that went straight up for 15 months, there was less demand for security devices like the dollar.

But it can only last that long. There is currently a fear of inflation in the markets due to higher employment and wages.

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

However, fears of inflation are likely to be inflated due to the fact that we have not seen such a strong economy before the financial crash.

When inflation gets too high, it increases production costs and business slows down. But currently inflation remains stable at around 2%.

This may seem high, as it was around 0% throughout 2015 and some 2016, but overall this is normal. In fact, it is considered healthy.

As a reference, inflation rose by over 4% in 2005 and 2006, just as the economy was showing signs of slowing.

Many are wondering how to profit from this analysis.

Demand for the dollar

The dollar could easily strengthen from here as well.

Currently, a huge part of the world economy has extremely low interest rates. For example, most of Europe is below 1% and they do not plan to increase rates aggressively any time soon.

The United States, however, has a rate of 1.5%. That’s not high, but we could easily see that it will cross 2% this year if the economy stays healthy.

It would also increase the government bond rate, which is currently 2.86%. As the rate rises, international investors will start buying more U.S. bonds, which increases demand for the dollar and increases its value.

How to make money

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

One purchase option is a call to the UUP fund, but it is much riskier because you can lose the entire investment.

Another way would be to buy an ETF with a different currency impact.

For example, VelocityShares daily 4X USD against EUR ETF (NYSE: DEUR)returns four times the percentage that the dollar values ​​against the euro.

There are also similar funds that bring the dollar against other currencies, such as the pound (NYSE: DGBP), is on 09.30 NYSE: DJPY and the Australian dollar 04.30 NYSE: DAUD.