Hedge your bets

The US dollar has slipped quietly but significantly this year, and the implications for global investors are starting to be felt.

- Sanjesh Pinnapola

After serving for decades as the world’s go to safe haven, the greenback is losing some lustre, and with it, traditional hedging strategies are being but to the test.

Many international investors had treated US-dollar assets much like local currency bonds; buy the exposure, skip the hedge, let returns accrue. But that mindset is changing. According to the Bank for International Settlements (BIS), the dollar’s April-May decline wasn’t driven by wholesale portfolio reallocation but by non-US investors scrambling to hedge exposures after the fact, effectively selling dollars while holding US assets.