Major investors cut dollar hedges

An investigation into pension fund disclosures and insurance companies worldwide has revealed increasing risks facing the US dollar, as the largest holders of US assets are holding low levels of hedging against the currency's decline. According to data from Bloomberg, investors in markets such as Japan, Canada, and Taiwan have hedged only about 41% of their foreign currency exposure up to June, the lowest level since 2015. This exposes the dollar to sharp threats if investor sentiment shifts. The rising cost of hedging, combined with a decline in the dollar's exchange rate against major currencies and growing doubts about its future as a safe haven—due to events like the war in Iran and rising inflation—are likely to prompt investors to reconsider and increase their hedging strategies. This could lead to large capital flows in the currency markets and further declines in the dollar's value.

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