Dollar Hedging Impulse Fades Amid Stabilizing Holdings

The US dollar's hedging impulse has largely faded as holdings stabilize after the July FOMC meeting, according to BNY. Trade-weighted Dollar holdings are historically light, suggesting scope for stabilization.

BNY's Geoff Yu notes that early signs of USD buying are returning against EUR, MXN, and CAD. However, a sustained recovery still depends on stronger U.S. asset demand and renewed real-rate leadership.

The dollar hedges unwound after the FOMC meeting, with flows showing the first signs of dollar stabilization after a difficult August. The Fed's signal that it's willing to continue rate hikes removes the main driver for dollar sales in early August.