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BNY flags record-high USD exposure and urges higher FX hedges

BNY said equity holdings were 59.5% of total portfolio allocations as of last week, close to an early-July peak, leaving portfolios lightly hedged despite record cross-border dollar ownership.

Reported · Written up by our desk · Major Pairs

BNY analyst Geoff Yu said USD exposure is elevated across global portfolios, with strong buying in both equities and bonds generating rebalancing signals that point to a need for additional FX hedging.

In the note cited by FXStreet, Yu said the USD was the most-bought currency, with a marginal flow score more than twice that of JPY, and added that equity and fixed-income ownership of U.S. assets remains high while hedge ratios are low.

Yu added that July equity declines may ease some near-term pressure, but stressed that existing positions are still lightly hedged and concerns over potential equity outflows could warrant further dollar hedging.

BNY’s recommendation, according to FXStreet, was to increase FX hedges rather than sell U.S. assets outright, describing it as a more efficient way for portfolios to reduce risk given the historically large U.S. exposure.

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