Dollar Selling Revives as Cross-Border Investors Rebuild USD Hedges

The US dollar has seen a resurgence in selling pressure due to cross-border investors rebuilding their USD hedges after the July Fed meeting. According to BNY's Geoff Yu, the July Fed decision marked a peak in dollar dehedging rather than an end to U.S. exceptionalism.

Cross-border investors are adding USD hedges again, with net U.S. asset exposure falling sharply from 0.47 to 0.34 between July 29 and August 5. This shift highlights how strongly investors had re-engaged with the dollar.

The selling pressure is concentrated against GBP, EUR, and CAD, while JPY and CNY remain notable exceptions. BNY's data indicate that the Fed outlook remains material for hedging levels, and the Fed will need to remain sensitive to such FX effects, especially if the dollar is increasingly viewed as an inflation pass-through channel.