By Yoruk Bahceli
LONDON, Feb 13 (Reuters) - Clients of BNY, one of the world’s biggest custodians, are hedging their exposure to the dollar by the most in over two years, a senior strategist told Reuters on Friday, reflecting an increase in investor caution towards the U.S. currency this year.
The clients are putting on U.S. dollar hedges almost 20% larger than they would need to if they only wanted to keep pace with the changes in the value of their U.S. bond and equity holdings, Geoff Yu, senior EMEA market strategist at BNY, said.
That is up from around 10% towards the end of last year and the highest since late 2023, he noted. The dollar has continued to slide in the first few turbulent weeks of 2026, rekindling volatility that saw the greenback drop over 9% last year, as President Donald Trump’s erratic approach to trade and diplomacy, along with attacks on the Federal Reserve spooked investors. That has revived the debate on whether investors will sell U.S. assets and seek more protection against moves in the dollar when holding them, a move that kicked off last year.
Yu said the data didn’t specify which jurisdictions accounted for the bulk of the hedging this year, but said it was likely driven more by European clients hedging in the U.S..
While clients are hedging more, BNY flows don’t support a pick-up in the so-called ‘Sell America’ trade as they have not reduced the weightings of U.S. equities and Treasuries in their portfolios, Yu added.
Instead, the bigger driver was more likely to be interest rate differentials, particularly given that the Fed is widely expected to keep lowering borrowing costs when several other major central banks are getting close to or already raising theirs, a dollar-negative.
The rise in client hedging activity has “coincided with the Fed staying relatively dovish and we’re seeing a lot more pivots in other central banks,” Yu said.
To arrive at his hedging figure, Yu said he assumed clients held portfolios split with a 80%-20% ratio of U.S. Treasuries to equities given most of the assets under BNY’s custody are in fixed income.
So clients that allocate a larger share of their portfolios to stocks would be hedging less than the data suggests, he added.
Investors increase U.S. dollar hedging
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BNY clients hedge dollar exposure by most since 2023, bank says