US Dollar Exposure Reaches Record High Amid Equity and Bond Buying

Global portfolios are showing elevated exposure to the US Dollar (USD), according to BNY's Geoff Yu. Strong buying in both equities and bonds has generated significant rebalancing signals, but instead of selling U.S. assets, he recommends increasing FX hedges.

The bank notes that USD exposure is at a record high, with equity and fixed-income ownership remaining elevated while hedge ratios are low. US equities posted a modestly positive marginal return score, contributing to a large combined rebalancing signal.

Geoff Yu emphasizes that the July equity declines may ease some pressure but do not remove the need for hedging. He advises increasing FX hedges instead of cutting U.S. allocations outright, citing high hedge ratios and dollar allocations.