US Dollar Lags as Stocks and Bonds Roar Back
- UUP sinks to three-year lows even as stocks and bonds rally.
- Foreign appetite for U.S. assets has taken a hit.
The S&P 500 and U.S. bonds have come roaring back in recent months, with both asset classes fully recovering from the turmoil caused by President Donald Trump’s trade war and tariff announcements earlier this year. But one key market hasn’t bounced back at all: the U.S. dollar.
The greenback plunged during the worst of the trade tensions in March and April, and it hasn’t recovered since. The U.S. Dollar Index is down more than 10% year to date and now sits near its lowest levels in three years.
Global Outlook Hits UUP, Propels FXE & FXY
The Invesco DB US Dollar Index Bullish Fund (UUP), which tracks another index—the Deutsche Bank Long USD Currency Portfolio Index—has lost 8% this year.
The weakness in the greenback stems from a shifting global growth picture. Economic prospects outside the U.S. are improving, particularly in Europe, where aggressive fiscal stimulus has lifted both stock prices and long-term interest rates.
That’s made European assets more attractive to global investors and helped propel the Invesco CurrencyShares Euro Trust (FXE) to a 14% gain this year.
At the same time, foreign appetite for U.S. assets has taken a hit. Despite record highs in U.S. equities, international investors have grown more cautious in the face of rising trade tensions. And while U.S. interest rates remain higher than in most developed countries, expectations for potential Federal Reserve rate cuts in the coming months have also weighed on the dollar.
Japan’s yen has been another beneficiary of this shifting sentiment. The Invesco CurrencyShares Japanese Yen Trust (FXY) is up 9% on the year.
The U.S. is still an attractive destination for capital but, relatively speaking, international economies and markets are gaining ground. Whether the dollar stabilizes here or continues to slide will depend on how this dynamic evolves.
