Dollar ETFs Slip As Lagarde Signals Hawkishness

Dollar funds had been one of the few asset classes not in the red this year.

Reviewed by: Dan Mika
Edited by: Dan Mika

ETFs bullish on the dollar against other developed economy currencies slipped Monday after European Central Bank President Christine Lagarde said the bloc is aiming to exit its negative rate policies by September, cutting down one of the few assets that have gained in 2022’s market turmoil. 

In a blog post, Lagarde said the ECB will aim to start lifting its key deposit facility rate in its July meeting and have a positive rate by the end of the third quarter to target soaring inflation.  

“In the end, we have one important guidepost for our policy: to deliver 2% inflation over the medium term. And we will take whatever steps are needed to do so,” she wrote. 

The bloc has had a negative prime rate since August 2014 as it dealt with a debt crisis, and it currently sits at -0.5%. 

The hawkish pivot is bad news for bullish dollar ETFs like the $1.7 billion Invesco DB U.S. Dollar Index Bullish Fund (UUP) and the $568 million WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU), which are long the dollar and short against a basket of currencies that includes the euro. The spread between interest rates is a key driver of these ETFs’ returns. 

Although inflation has held at a four-decade peak in the U.S., concurrently high inflation in the eurozone has canceled out those negative effects. Dollar ETFs have benefited from the Federal Reserve starting its hiking cycle faster than its central bank counterparts abroad. 


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Lagarde’s comments accelerated a week-long run of the euro gaining on the dollar, forcing returns for UUP and USDU to drop nearly a third from their year-to-date highs, while the Invesco CurrencyShares Euro Trust (FXE) gained 3.15%. 

However, the long-dollar/short-euro play remains positive for bulls on the year versus an 8.5% loss for aggregate bonds and a 17.6% loss for the S&P 500. 


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Contact Dan Mika at [email protected], and follow him on Twitter 

Dan Mika is a reporter for He has previously covered business for the Ames Tribune and Cedar Rapids Gazette in Iowa, and BizWest Media in Fort Collins, Colorado. Dan holds a bachelor's degree in journalism from Truman State University.