With U.S. interest rates at historic lows, the Invesco DB US Dollar Index Bearish Fund (UDN) finds itself in the currency exchange traded fund spotlight.
UDN seeks to track the changes, whether positive or negative, in the level of the Deutsche Bank Short US Dollar Index Futures Index. The index reflects the changes in market value over time, whether positive or negative, of a short position in the DX Contract which expires during the months of March, June, September, and December.
The fund seeks to track the index by establishing short positions in DX Contracts. DX Contracts are linked to the six underlying, or index, currencies of the U.S. Dollar Index (USDX®), or the USDX®. The index currencies are Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc.
“You have the twin deficits in the U.S. getting worse, you have the trade balance at the worst in 15 years,” Eric Robertsen, global head of research at Standard Chartered Bank, said in a recent CNBC interview.
Electoral Issues for UDN
Data confirm that the Dollar Index is nearing correction territory, which if realized, could hasten more declines. Additionally, the upcoming presidential election could have profound consequences for the greenback.
Standard Chartered's Robertsen notes that a victory by former Vice President Joe Biden could speed the dollar's decline while President Trump winning a surprise second term could be “messy” for the U.S. currency.
The analyst also sees potential for the dollar to enter a prolonged slump.
“If you were to see a reversal of that — either because of global trade or a change in the United States’ domestic economic agenda — and combined with the fact that the U.S. no longer has an interest rate advantage over its G-10 peers, I think you can make a very compelling case for a multi-year dollar depreciation,” he said to CNBC.
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