Dollar Normalization: International Investors Cut Exposure Amid Record Highs

The US dollar has been under pressure as international investors aggressively cut their exposure to it. According to BNY's Geoff Yu, this is a normalization of previously extreme US asset holdings rather than a collapse in US exceptionalism.

The July FOMC meeting marked a clear turning point for the dollar, and since then, the unwind of 'dollar exceptionalism' has been sharp. As a result, aggregate US exposure among international investors reached record highs, measured using a 40:60 equity/fixed-income portfolio net of dollar holdings.

Barring a major policy misalignment, BNY sees this move as a healthy normalization of international exposure to US assets. The bank advises raising USD hedge ratios rather than cutting U.S. assets outright, while treating the dollar decline as a broader exposure normalization.