After a short blip last week, the U.S. dollar has bounced back and continues to hold its own. Analysts were already predicting a potential for a serious correction in coming weeks and/or months witnessing what they thought were the first signs of weakness in the powerful US Dollar rally which began in early July of last year and is up more than 19 percent since the beginning of 2014.
However, already by Friday, U.S. fundamentals came in better than expected, boosting the Greenback back up into positive territory.
Several factors have been cited as reasons for the re-reversal of the dollar. Despite net payrolls which beat expectations by a modest 29,000 jobs and unemployment figures that reported a higher rate of 5.7 percent, it was the jump in wage growth which showed a 0.5 percent jump in wages (the biggest in seven years) that revived rate expectations. Yields were also up and this has also helped the dollar stay on an uphill track.
Rush to EFTs
In the meantime, Reuters reports that U.S. investors concerned by the volatility in the foreign exchange market are moving their money into EFTs (exchange-traded funds). ETFs are funds that track indexes like the NASDAQ-100 Index, S&P 500, Dow Jones, etc. With an ETF, investors are buying shares of a portfolio that tracks the yield and return of its native index. The main difference between ETFs and other types of index funds is that ETFs don't try to outperform their corresponding index, but simply replicate its performance. They don't try to beat the market; they try to be the market.
EFTs have been around since the 1980’s but with concerns about the Euro and its effect on international markets, they have become one of the most sought-after financial products in 2015.
According to Luciano Siracusano, chief investment strategist for WisdomTree Investments in New York, "People are voting with their feet. They're putting billions of dollars into these funds, and what they're saying is, 'We don't want to be 100 percent unhedged.”
So with all this, is it enough to keep the 7-month rally from reversing course once again?
Forecasters believe that if conditions in Europe continue to worsen, the Dollar should remain ahead of the game and that if global stimulus methods continue to fail, the Greenback should maintain its reverse status. With the failure of the recent risk management efforts taken by several central banks throughout the world, including the first dramatic one taken by the ECB which seems to have set the ball rolling, the strength of the dollar should last for some time. But financial markets are fickle and full of surprises and no one can really predict what the next surprise action will look like. We can only wait and see.