Cross-border investors are increasing dollar hedges, reducing unhedged U.S. exposure despite sustained demand for U.S. assets.
Investors are rebuilding hedges against the U.S. dollar following the Federal Reserve’s July meeting, reversing a trend of dollar dehedging. The shift has reintroduced selling pressure on the currency, though underlying demand for U.S. assets remains strong.
The Fed’s July decision marked a peak in dollar dehedging rather than a broader shift in U.S. exceptionalism. Cross-border investors are adjusting portfolios to reduce unhedged exposure, which may limit dollar upside in the near term.
Market participants are monitoring the Fed’s next moves, as hedge adjustments suggest cautious positioning amid evolving monetary policy expectations.