Future Looks Brighter for U.S. Dollar ETF

 |  Includes: UDN, UUP
by: Tom Lydon

Once upon a time, weren’t we able to buy more stuff with our dollars? The U.S. dollar, along with related ETFs, has dropped in value, but it still hasn’t lost its appeal.

According to Bloomberg Correlation-Weighted Currency Indexes, the U.S. dollar is about as valuable now as it was back in 1975, writes Ben Levisohn for Bloomberg. Since November, the U.S. dollar has appreciated 6%, but it still depreciated 12% in the first 11 months of 2009.

Still, demand for the dollar has been on the rise, with investors outside the U.S. hoarding $3.6 trillion in 2009 through November, up 17%.

Barclays Capital economists estimate that U.S. GDP may expand 3.6% this year, as compared to 2.5% for the rest of the developed world, and 3.1% in 2011, versus 2.6% in other developed countries.

The U.S. government debt increased dramatically during the recession and Moody’s Investors Service has warned that the U.S. government is in danger of losing its Aaa bond rating. Moody’s estimates that the ratio of debt to GDP in the U.S. will distend to a 76.5% in 2019, compared to an earlier forecast of 70.1%. The Congressional Budget Office expects American debt to hit 65% of GDP in 2010.

The dollar came under fire and there have been talks of the dollar losing its reserve currency status. However, other currencies don’t have the necessary liquid markets and low capital controls to take up the mantle of being a reserve currency.

  • PowerShares DB U.S. Dollar Index Bullish (NYSEArca: UUP)

  • PowerShares DB U.S. Dollar Index Bearish (NYSEArca: UDN)

Max Chen contributed to this article.