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Here's How to Profit When U.S. Dollar Flies on Accelerated Inflation

Stocks in this article: UUP FXE BAC

NEW YORK (TheStreet) -- A divergent economic trend between Europe and the Unites States could set the stage for a prolonged rally in the U.S. dollar, while the euro weakens.

PowerShares DB US Dollar Index Bullish (UUP), a fund designed to track the value of the U.S. dollar, could continue to move upward as the weak European economy and the rising inflation in the United States lead funds into the dollar.

As the economic activity falters and inflation remains subdued, the European Central Bank is expected to continue enacting a loose policy over the next year.

Earlier this month, Germany surprised forecasters when it posted sharply lower industrial production for May, falling 1.8% month on month on a seasonally-adjusted basis, well below the consensus for a flat reading and April's downward-revised decline of 0.3% (from 0.2%).

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As shown in the chart below, German industrial production has declined steeply since the beginning of 2014.

German economic data courtesy of TradingEconomics.com

The decline in the annualized output comes alongside a core inflation rate in the euro area that remains stuck between 0.7% and 1.0% annual growth, well below the ECB's 2% target.

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