Daiwa: US investors' reduction of overseas hedging puts pressure on the dollar

Goldman Sachs reports that earlier this year, the main reason for the decline of the US dollar was due to American investors reducing foreign exchange hedges on overseas investments, rather than global investors increasing hedging ratios on US investment portfolios. “More noticeable activity comes from domestic US investors adjusting their overseas hedge ratios,” said Chris Pizzotti, Head of Global Foreign Exchange Sales and Trading at State Street Markets, at the Federal Reserve Bank of New York’s Foreign Exchange Market Structure Conference on Wednesday. “We estimate that US domestic investors have halved their hedge ratios, which has actually contributed to the dollar’s weakness. The uncertainty brought by Liberation Day still exists, naturally also sparking discussions about de-risking.”