The dollar index rose to above 99, the highest since May of 2020 as investors flock to the safe-haven U.S. Dollar amid the escalating Russia-Ukraine war. The U.S. Dollar Index measures the value of the United States dollar relative to a basket of U.S. trade partners' currencies — The Euro, Swiss Franc, Japanese Yen, Canadian dollar, British pound, and Swedish Krona. The Index goes up when the U.S. dollar strengthens when compared to other currencies.
Last week, stronger-than-expected U.S. jobs report lifted the expectations of more aggressive action from the U.S. Federal Reserve — giving the greenback investors a positive signal. Fed Chair Powell has recently pointed to a 25-basis point rate hike in March but hinted at a more hawkish move if inflation does not subside. The most pronounced buying activity was against the euro, with inflation in Europe soaring to a record high of 5.8% in February. As of Monday, March 7th, 12:09 PM GMT +1, the EUR/USD has fallen to 1.0834 — its lowest since April 2020.
Investors pump funds into Invesco's dollar ETF
Investors have added this year over $150 million into the Invesco DB US Dollar Index Bullish Fund (UUP) – one of the largest Currency ETFs in the market. A Currency ETF provides investors with exposure to a single currency or a basket of currencies. The funds are comprised of currency futures contracts.
The UUP ETF seeks to track the Deutsche Bank Long USD Currency Portfolio Index - Excess Return – a rules-based index composed solely of long U.S. Dollar Index futures contracts that trade on the ICE futures exchange (USDX futures contracts). Investors who buy UUP track the value of the U.S. dollar relative to a basket of the six major world currencies - the Euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. UUP has a total expense ratio of 0.78% and trades primarily on the NYSE Arca. Since war erupted in Ukraine, UUP gained roughly +2.3%.
Fixed Income ETFs received over $7.3 billion in net inflows between February 28th and March 4th as investors continue to search for ways to navigate the wavy markets amid the ongoing possible World War III prelude happening in Ukraine. America-domiciled Fixed Income ETFs had the lion's share garnering $5.87 billion of the total net inflows. Europe-domiciled Fixed Income ETF garnered $1.61 billion while the APAC region witnessed net outflows of $122 million.
America's Fixed Income ETFs top fund action
Among the biggest flow grabbers in America last week were iShares 7-10 Year Treasury Bond ETF (IEF, $1,507 million), iShares iBoxx $ High Yield Corporate Bond ETF (HYG, $701 million), and iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB, $592). IEF seeks to track IDC US Treasury 7-10 Year Index (4PM) and invests in AAA-rated U.S. Treasury bonds with remaining maturities between seven and ten years. The fund has a total expense ratio of 0.15% and trades primarily on the NASDAQ.
On the other hand, Fixed Income ETFs flow bleeders included iShares Core U.S. Aggregate Bond ETF (AGG, -$386 million), iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$289 million), and iShares MBS ETF (MBB, -$188 million).