This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Global Macro: Emerging Markets, Euro Push Dollar Higher

Stocks in this article: UUP

NEW YORK (TheStreet) -- The PowerShares DB US Dollar Index Bullish (UUP) may strengthen this week as emerging markets show no sign of stabilizing and the eurozone faces deflation risks.

Last week, speculators pulled funds out of emerging-market currencies. One reason was that the Chinese economy underperformed expectations in January, weighing on demand for output from emerging markets, which rely heavily on China for their exports.

Meanwhile, the Federal Reserve cut its stimulus program, pushing interest rates higher. The reduction of excess capital by tightening policy led the Reserve Bank of India to question whether the Fed knew its choices had a global impact.

In an effort to curb outflows of capital, Turkey, South Africa and India all raised their benchmark rates over the past week. The strategy may help stabilize currencies in the short term, but ultimately higher rates will weigh on growth and investment.

Analysts see further selling in emerging-market currencies, which should drive the U.S. dollar higher.

Furthermore, the eurozone released an inflation figure last week of 0.7% annual growth, well below the European Central Bank target of 2%. Such tepid price increases in Europe have brought about fears of deflation.

The ECB meets on Thursday to discuss policy, and deflation will certainly be one of the points of interest. Although the ECB may not cut rates again, it may consider some other form of stimulus.

In either case, deflation is an issue, and with policy in both the U.S. and Europe beginning to diverge, expect the dollar to outperform the euro in the months to come.

Lastly, the Fed announced a cut in stimulus last Wednesday because it sees the U.S. economy gradually improving. On Thursday, it was announced that gross domestic product in the fourth quarter rose 3.2%, but the country's employment situation remains a gray area.

The projection for nonfarm payrolls number is 184,000 jobs added in January, which would be a strong number. The U.S. dollar could face some headwinds if the payrolls figure misses estimates, but compared with its foreign competitors, the dollar is one of the strongest currencies on the market.

UUP ChartUUP data by YCharts

At the time of publication, the author had no position in the fund mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. He takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

Follow @Macroinsights

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs