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Massive USD Under-Hedging Risks
- Large institutional investors own over $33 trillion in USD assets but have systematically under-hedged their USD exposure for 15 years.
- A small increase in hedge ratios could trigger trillions in USD selling flows, affecting FX markets significantly.
Steady Hands Selling USD
- Data shows consistent, steady selling of the dollar by foreign investors, especially during Asian trading hours.
- This selling is a programmatic FX hedging activity and not driven by daily news or price levels.
Adjust FX Hedge Ratios Carefully
- Institutional investors should consider modestly increasing their FX hedge ratios to manage risks more effectively.
- Even a 3% increase in hedge ratios on $32 trillion of US assets can trigger significant market moves.