Forex
Home›Forex›Major Pairs›Dollar outlook softens as real-rate support fades afte…
Dollar outlook softens as real-rate support fades after July FOMC
BNY estimates international investors could unwind record-high dollar exposure back toward flat within about 12 weeks if the adjustment is symmetrical.
BNY’s Geoff Yu said international investors have been aggressively reducing their dollar exposure as support from real yields erodes after the July FOMC meeting. The bank frames the move as a normalization of previously extreme U.S. asset holdings rather than a broader collapse in U.S. exceptionalism.
FX risks, the bank added, should be differentiated by currency pair and by asset class. It noted U.S. equities still look supported, while fixed income is more insulated because of stronger home bias, which it said should limit the impact of overseas hedging, especially at shorter maturities.
BNY pointed to a record level in international investors’ aggregate U.S. exposure, measured using a 40:60 equity-to-fixed-income portfolio net of dollar holdings. It said the July FOMC marked a clear turning point, with the unwind in so-called dollar exceptionalism progressing sharply.
In FX positioning, BNY advised raising USD hedge ratios rather than cutting U.S. assets outright, and it characterized the dollar decline as broader exposure normalization that, if sustained, could support a regime shift in FX markets into Q4.