Market data reveals that earlier concerns about "selling America" have proven unfounded, as global investors are actually implementing a "hedge America" strategy — continuously purchasing US stocks and bonds while using derivatives to hedge against further dollar depreciation risks.

Deutsche Bank data shows that since mid-year, ETF flows into US assets with dollar hedging have exceeded unhedged ETFs for the first time in a decade, with the bank emphasizing this shift as "unprecedented" in speed. Laura Cooper, global investment strategist at Nuveen London, notes that US market exceptionalism was briefly threatened in April when Trump announced punitive tariffs, but has since witnessed a reversal — with the core strategy now being "avoiding dollar exposure."

These hedging operations through derivatives shorting the world's primary reserve currency explain why US stock market gains coexist with the dollar persistently hovering near its lowest levels since 2022. The Federal Reserve's prospects for further rate cuts have reinforced this trend, as lower rates reduce exchange rate risks for global investors holding dollar assets.

Sahil Mahtani, head of research at Ninety One Asset Management London, anticipates that this new wave of dollar hedging could ultimately reach $1 trillion. This would merely restore hedging ratios on current global investments exceeding $30 trillion in US stocks and bonds to levels seen over the past decade — during periods of dollar strength and stock market surges, many investors had reduced hedging ratios due to perceptions of "no need for protection."

Institutions including State Street, Deutsche Bank, BNP Paribas, and Société Générale universally believe that hedging operations will pressure dollar performance next year. This pressure could prevent the dollar from rebounding from approximately 9% declines in 2025, particularly as the European Central Bank maintains unchanged rates while the Bank of Japan may raise rates within the year.

The common hedging method used by overseas investors involves forward selling dollars to lock in exchange rates, typically resulting in greater selling pressure on dollar spot markets, with trading costs primarily dependent on interest rate differentials between the dollar and other currencies.

When Trump's tariff policies triggered market turbulence in April, the dollar's traditional safe-haven role faced challenges. As US stocks and bonds plummeted, the dollar simultaneously weakened, indicating fund managers were turning to the Swiss franc, euro, yen, and other currencies for safety. Subsequently, while other US assets (particularly stocks) rebounded, the dollar recorded its worst first-half performance since the 1970s, with intensified hedging activity amplifying dollar weakness.

The Bank for International Settlements identified non-US investor hedging operations as an "important factor" in April and May dollar weakness. Investor concerns about the Trump administration undermining dollar support foundations extend beyond tariff policies. Unprecedented presidential actions including Federal Reserve Board restructuring and pushing for rapid rate cuts, firing senior data collection personnel over dissatisfaction with employment reports, deteriorating relationships with long-term allies, and increased suppression of opposition and media have all heightened market unease.

Standard Bank strategist Steven Barrow stated: "If markets speculate the Fed is cutting rates to stimulate the economy due to White House pressure, then the logic of betting on US stocks and Treasury short-term gains while shorting the dollar becomes valid."

July data shows foreign investors' holdings of US Treasuries reached historic highs, further confirming preferences for US bonds. Currently, overseas investors hold approximately $20 trillion in US stocks and $14 trillion in US bonds (including Treasuries, mortgage bonds, and corporate debt).

Mahtani cites academic research indicating that investors have recently reduced fixed income hedging ratios by approximately 5 percentage points and equity hedging ratios by about 2 percentage points, with "merely minor adjustments to these moderate measures potentially generating approximately $1 trillion in dollar foreign exchange transactions."

Due to the difficulty of tracking global cash flows, accurately measuring hedging activity scale is challenging — with daily forex market trading volumes reaching $7.5 trillion, institutional valuations often differ. State Street data shows that foreign investors including mutual funds, pension funds, and insurance companies saw their US asset hedging ratios stabilize after declining in April, currently at approximately 56%, below the 70% level seen in mid-2023.

State Street strategist Lee Ferridge emphasizes: "Foreigners are unlikely to sell US assets and more likely to increase hedging ratios, which is crucial for dollar trends."

Naturally, not all fund managers are hedging extensively. Taipei CTBC Investment fixed income head Zhang Rui'an states that their actively managed fixed income products have not increased currency risk or US Treasury yield hedging positions, anticipating low probability of significant dollar declines under gradual Fed rate cuts.

Despite signs of hedging activity revival, for many investors, this process requires years to complete. However, pension institutions in Canada, Europe, and Australia have already signaled intentions to increase hedging. Alfonso Peccatiello, chief investment officer at Amsterdam's Palinuro Capital, notes: "As investment committees study and approve hedging plans, such situations will increase."

Stefano D'Ao, senior portfolio manager at Paris-based Eleva Capital, began hedging US equity investments early this year. When the euro-dollar exchange rate was at 1.05 (near its lowest level since late 2022), hedging positions were established, subsequently seeing the euro rise above 1.17, becoming one of the G10 currencies with double-digit gains against the dollar this year.

D'Ao's logic partially based on expectations that the Trump administration will drive dollar depreciation — the company shifted toward European stocks at the end of 2024, reduced US stock holdings before the April tariff announcement, then reinvested in US markets, currently planning to maintain dollar hedging positions "anticipating US stocks will rise as the dollar weakens."