US dollar's slide in April 2025: the role of FX hedging

Key takeaways

• Currency hedging by non-US investors holding US dollar securities appears to have made an important contribution to the weakness of the dollar in April and May 2025.
• In recent years, the strength of the dollar and high currency hedging costs driven by elevated short-term dollar interest rates had discouraged non-US investors from hedging their US dollar exposures.
• Clues as to the location of currency hedging activity can be gleaned from intraday exchange rate movements. In April, the largest declines in the US dollar occurred during Asian trading hours, suggesting an important role for Asian investors.