This Trump ETF Trade Completely Unwinds

May 19, 2017

Swirling controversy about President Trump's conversations with ex-FBI director James Comey sent stocks and interest rates spiraling lower this week. Many of the "Trump trades" that performed so well in the wake of the president's surprising victory on Nov. 8 reversed course, erasing a chunk of their post-election moves.

One of those trades is ahead of them all in its fade. Not only has it reversed course, but the U.S. dollar has completely erased all of its gains since Election Day. On Wednesday, the widely followed U.S. Dollar Index fell for its fifth-straight session, bottoming out at 97.43, the lowest point since the election.

The buck is now down 4.5% year-to-date, while the largest ETF tracking the currency, the $659 million PowerShares DB US Dollar Index Bullish Fund (UUP), is down 4.8%.

YTD Return For US Dollar Index & UUP

 

Pro-Growth Agenda Pushed Back

It's not hard to figure out why the greenback is falling. The latest allegations against Trump, regardless of whether they are true or false, will likely push back his pro-growth economic agenda. Health care reform, tax reform, deregulation and infrastructure spending all become more difficult when the president is having to defend himself on a near-daily basis.

Less growth translates into a weaker dollar. That's without even accounting for the effect on the Fed's tightening schedule. If the central bank slows down its rate hikes in light of the latest events, that's another big weight on the U.S. currency.

 

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