Dollar faces risk of decline amid investor shifts

An audit of disclosures by global pension funds and insurance companies reveals that U.S. asset holders are reducing their hedge positions against a declining dollar, exposing the currency to the risk of sharp declines if investor sentiment shifts. As of June 30, the hedge ratio on foreign currencies—including Japan, Canada, and Taiwan—dropped to its lowest level since 2015, reaching 41%. The decreasing cost of hedging and some investors' belief that the dollar may weaken are refocusing attention on the prospects of a decline in the US currency's value, especially amid increasing pressures on the dollar from American policies and inflation in the Eurozone. These factors could accelerate the dollar's fall if investor behaviors continue to reduce their hedges.

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