Rabobank analysts note that post-GFC portfolio flows favoured US assets, but since last year geopolitical tensions, tariff concerns and US fiscal worries have eroded the ‘buy America’ trade. Strong CHF and SEK versus weak USD and JPY reflect a renewed focus on fiscal strength. Rising USD hedging ratios, especially among Japanese and other foreign investors, have added downside pressure to the Dollar.

Repricing safe havens and hedging costs

"Since the start of last year, geopolitical concerns, trade tensions between the US and its allies, fears about the impact of tariffs on the US economy, Fed credibility worries and uncertainties related to the size of the US’s budget and debt positions have all played a part in souring the ‘buy America’ trade."

"However, while a measured pace of diversification may still allow the USD to remain well supported against some of its peers, an increase in USD hedging ratios has almost certainly created some of the downside pressure on the greenback that has been recorded since last spring."

"Even though there is no evidence that foreign investors have been dumping US treasuries en-masse, it is likely that last spring’s sudden drop in the value of the USD was in part of function of asset managers rebuilding USD hedges on assets they already owned."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)