NEW YORK (TheStreet) -- As the U.S. dollar continues trending higher, inflation may have difficulty picking up steam.
PowerShares DB US Dollar Index Bullish (UUP) is up nearly 6% since early July as the U.S. economy has been relatively much stronger than its European counterpart. The dollar index is comprised of 57.6% trade with the euro.
Eurozone economic growth and factory activity have broadly declined in 2014, leading many European officials to call for policy loosening to aid the recovery. In contrast, the U.S. economy picked up momentum this year, causing market observers to speculate that the Federal Reserve could soon raise short term rates.
The dollar saw a significant spike higher against the euro last Thursday as the European Central Bank cut its main refinancing rate to 0.05% from 0.15%, with ECB President Mario Draghi stating that more stimulus in the form of quantitative easing could be on the table in the future.
U.S. dollar strength tends to have an adverse effect on inflation as a stronger dollar gives consumers more purchasing power, while making imports such as gold and oil relatively less expensive.