Deutsche Bank: Investors cut dollar exposure at record pace

Currency hedging by overseas investors when buying US stocks and bonds is slashing dollar exposure at an "unprecedented rate", according to an analysis of ETFs by Deutsche Bank. For the first time in a decade, inflows into dollar hedge ETFs buying US assets exceeded inflows into non-hedge funds, according to George Saravelos, head of global currency research at Deutsche Bank, citing data from more than 500 funds. In Mr. Saravelos's view, such hedging explains why the dollar remains weak even as international investors return to US assets after Mr. Trump's tariffs roiled markets earlier this year. At the time, there was speculation that the risk of a trade war could sap investor appetite for US stocks, bonds and the dollar itself. "The implication at the foreign exchange level is clear: foreign investors may have returned to US asset markets (albeit at a slower pace), but they do not want to take on the dollar exposure that comes with it," Mr. Saravelos writes. "For every asset that is hedged against the dollar, an equivalent amount of currency is sold to eliminate foreign exchange risk."