Global investors are piling into Wall Street again, but this time with a twist: they’re hedging almost all their exposure to the U.S. dollar.

A new analysis by Deutsche Bank suggests that while confidence in American companies remains strong, faith in the greenback is rapidly eroding.

A Two-Track Strategy Emerges

Deutsche Bank reviewed the trading behavior of more than 500 international funds and found a striking trend – foreign inflows into U.S. assets are surging, yet most investors are neutralizing their currency risk. Over 80% of new stock positions and about half of bond purchases are now fully dollar-hedged, compared to almost none at the end of 2024.

George Saravelos, the bank’s global head of FX research, said the behavior reflects a tactical shift: “Investors are still drawn to the performance of U.S. markets, but they’re unwilling to hold the currency that underpins them.” Essentially, for every dollar invested, an equivalent amount of dollar exposure is being sold off elsewhere.

Dollar’s Decade of Dominance Faces New Strain

The U.S. dollar’s losing streak is deepening. The DXY index, which measures its strength against major peers, has fallen more than 10% this year – its worst first-half showing since 1973, when Richard Nixon was in the White House. Persistent deficits, political tensions, and Trump’s trade war rhetoric have all eroded the dollar’s appeal as the world’s go-to reserve asset.

As the dollar weakens, many investors see hedging as a necessary insurance policy rather than a speculative play. Deutsche’s findings highlight a growing divide between confidence in U.S. corporate fundamentals and skepticism about Washington’s fiscal trajectory.

Wall Street Still the Bright Spot

Despite currency caution, global investors continue to favor U.S. equities. Analysts at JPMorgan say the combination of strong corporate earnings, pro-growth fiscal policy, and the long-term promise of artificial intelligence keeps America’s stock market far more attractive than most alternatives abroad. “Foreign capital is still chasing innovation and resilience in U.S. companies,” the strategists noted, “but nobody wants to get caught holding a weaker dollar.”

This new dual-track behavior – bullish on Wall Street, bearish on Washington – may become the defining theme for global capital flows in the months ahead.

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