Clients of BNY Mellon, one of the world’s largest custodians, are increasing their hedges against U.S. dollar exposure, reaching levels not seen in over two years. This reflects growing investor caution toward the American currency this year, according to Geoff Yu, senior EMEA market strategist at BNY Mellon. BNY Mellon is a global investments company that provides a range of financial services including investment management and investment services.
Yu noted that clients are now putting on U.S. dollar hedges almost 20% larger than needed to match changes in the value of their U.S. bond and equity holdings. This marks a significant rise from around 10% at the end of last year and represents the highest level since late 2023. The dollar’s continued decline in early 2026 has rekindled volatility, reminiscent of last year’s 9% drop, which was driven by factors like President Trump’s policies and attacks on the Federal Reserve.
While the data does not specify the jurisdictions driving this hedging activity, Yu suggests it’s likely led by European clients hedging in the U.S. However, BNY Mellon’s flows do not indicate a “Sell America” trend, as clients have not reduced their holdings of U.S. equities and Treasuries.
The primary driver of increased hedging appears to be interest rate differentials, especially with the Federal Reserve expected to continue lowering borrowing costs while other major central banks are either raising or nearing rate hikes. This rise in hedging activity coincides with the Fed’s dovish stance and policy shifts in other central banks. Yu’s hedging figure is based on an assumed portfolio allocation of 80% U.S. Treasuries and 20% equities, reflecting the composition of BNY Mellon’s assets under custody.
