Investors Flee Bullish-Dollar Fund as Doom Calls Grow Louder

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(Bloomberg) — An exchange-traded fund betting on U.S. dollar gains is shrinking rapidly as the currency’s outlook darkens.

Total assets in the Invesco DB US Dollar Index Bullish Fund (ticker UUP) have dwindled to $337 million, down from a peak of $1.04 billion in April, according to data compiled by Bloomberg. More than $68 million exited the ETF on Monday in its biggest single-day outflow in a month.

Investors have become increasingly wary as Wall Street’s warnings on the dollar grow louder. Citigroup Inc. strategists said this week that the currency could plunge as much as 20% in 2021 should Covid-19 vaccines turn out to be widely distributed, with a chorus of analysts calling for the greenback to falter. That could put pressure on UUP, which tracks the performance of the dollar against six developed-market peers including the euro, the yen and the pound.

© Bloomberg UUP’s assets have fallen as its price drops

The exodus from UUP reflects “continued bearish sentiment” on the dollar, with several analysts projecting a slide as we enter 2021, according to Mohit Bajaj, director of ETFs for WallachBeth Capital. “That is why we are seeing more bullish sentiment towards emerging markets.”

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UUP has slumped more than 11% from this year’s high in March when the spreading coronavirus rocked global markets and sent investors flooding into haven assets. As a result, the Federal Reserve cut rates to near-zero levels and ratcheted up its bond-buying program. But those measures could also weigh on the dollar as the global economy heals, according to Citigroup.

Investors buy currency-focused ETFs for an array of reasons — including hedging — so outflows may not necessarily reflect a directional bet. However, sentiment against the dollar has been building for months. Hedge funds and speculators have been net-short the greenback since May, according to Commodity Futures Trading Commission data.

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