U.S. Dollar ETF Surges As The Federal Reserve Rasies The Discount Rate
“The Federal Reserve delivered a market surprise after the close Thursday by raising the discount rate from 1/2 percent to 3/4 percent. The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility. This is quite possibly the first major signal from the Fed that the easy money policies that they have held onto since the start of the financial crisis are coming to a end,” The Street Insider Reports.
They go on to say, “While recent testimonies from Fed Chairman Ben Bernanke last week and yesterday’s FOMC minutes discussed such a move, many didn’t expect it so soon. Market participates were also shocked about the timing of the move – a Thursday afternoon heading into an option expiration. The increase in the discount rate widens the spread between the primary credit rate and the top of the FOMC’s 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point.”
“The Fed made the move “in light of continued improvement in financial market conditions.” The Fed said the changes are intended as a further normalization of the Federal Reserve’s lending facilities, but do not signal any change in the outlook for the economy or for monetary policy. The announcement from the Fed has sent the dollar higher, as represented by the 0.63% after-hours move in ETF PowerShares DB US Dollar Index Bullish (NYSE: UUP),” Street Insider Reports.
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The investment (UUP) seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Long US Dollar Futures index. The index is comprised solely of long futures contracts. The futures contract is designed to replicate the performance of being long the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.
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