Global investors in US stocks and bonds dropped protection against dollar declines to the lowest since 2014 as expected monetary-policy tightening from the Federal Reserve makes hedging more costly, according to State Street Corp.
The Fed left interest rates unchanged this week, but traders are betting the central bank will hike as soon as December and again in 2027. Those wagers drew support from Chairman Kevin Warsh’s press conference this week, when he cited a strong economy and warned over persistent inflation.
The prospect of higher US rates has been supporting the dollar, which is on track to gain for a second straight month, also easing the appetite for protecting against greenback losses. The ratio fell as low as 44.5% in October, from above 60% earlier this year in the wake of the outbreak of the Iran war, the bank’s data show.
“The hedge ratios on equities and Treasuries dropped in September,” said Lee Ferridge, a strategist at State Street, one of the world’s largest custodian banks, holding about $59 trillion. “With the Fed turning more hawkish it becomes more expensive to hedge.”
Typically the dollar is a haven during times of crisis or market tumult, such as when US stocks tumble. But there have been episodes since last year when the currency sold off along with shares.
That happened, for example, when President Donald Trump’s rollout of sweeping tariffs in April 2025 triggered losses in both the US stock market and the dollar amid speculation global investors might dump American assets broadly. The end result, though, was that investors wound up just stepping up dollar hedges.
The dollar is vulnerable to a selloff in the artificial-intelligence trade, which is driving the US stock market as well as the economy, Ferridge said. As a result, if those AI-linked positions falter, the dollar can weaken as the stock market declines, compounding losses for international investors, he said.
On Friday, that was the case, with the Bloomberg Dollar Spot Index slipping as tech shares led a steep slide in US stocks.
More stories like this are available on bloomberg.com
Published on November 2, 2026
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