Under the Donald Trump administration, the U.S. has enjoyed the unusual combination of a booming stock market and a weakened dollar. But according to analysts, this “sweet spot” may be more fragile than it looks.
The underlying mechanism: foreign investors keen on U.S. equities have largely hedged out currency risk – by selling the dollar through derivatives while buying stocks. That allowed capital to flow into domestic financial assets without pushing the dollar higher. However, most of the hedging capacity is thought to be exhausted (over 80% now hedged) so the ability to suppress the dollar via this channel may no longer be available.
This matters because a weaker dollar is central to Trump’s industrial-policy vision: boosting U.S. exports, reinvigorating manufacturing and narrowing the trade deficit. Meanwhile, the administration is also eager to attract massive foreign investment – which by its nature tends to strengthen the dollar. These goals are in tension. If hedging fades, the dollar might appreciate, undermining the export-boost aim.
For the BFSI sector (banks, financial-services firms, asset managers), the implications are significant. Currency hedging dynamics may shift. Firms have to consider whether the structural tailwind for hedged capital flows remains. Meanwhile, currency risk is becoming more central: if hedging shrinks and the dollar rises, assets denominated abroad or export-exposed could face margin compression or valuation pressure.
In short, the dollar’s path is no longer purely a matter of U.S. policy intent – it increasingly hinges on investor-behaviour, hedging exhaustion, and structural capital flows. For financial-services players, the window for relying on a weak-dollar backdrop may be closing, and strategy will need to adapt accordingly.
