Global pension funds are pulling back from foreign exchange hedging strategies that were put in place following last year's 'Liberation Day' market turbulence, as a resurgent US dollar reduces the urgency for protective currency positions. A solid US dollar rally in 2026 has been underpinned by a hawkish Federal Reserve stance, with rising inflation readings and the appointment of Kevin Warsh as Fed chair driving up US real, or inflation-adjusted, interest rates in recent months. The combination of tighter monetary policy expectations and higher real yields has provided fresh support for the greenback.
According to a Wells Fargo analysis of FX hedge ratios, Canadian, Dutch and Danish pension funds have been among the institutional investors retreating from the dollar-hedging positions they established in the aftermath of last year's Liberation Day market unrest. The coordinated unwinding of these protective strategies is easing pressure on the US currency. The reversal in hedging behavior by major pension fund operators marks a significant shift in institutional sentiment toward the dollar.
Last year's Liberation Day episode had prompted a wave of defensive currency positioning among large asset managers with substantial US equity and fixed income holdings, as concerns mounted over dollar weakness and its potential to erode returns for foreign investors. The easing of those hedges is now contributing to a further stabilization of the greenback, removing what had been a structural source of selling pressure in currency markets. The development reflects how swiftly institutional currency strategies can pivot in response to changes in central bank policy signals and macroeconomic fundamentals.
Source: Kitco News / Wells Fargo analysis, as reported by Forex Factory.
Source: forexfactory.com