The potential end to Fed rate increases may not be enough to cause dollar depreciation in the medium term.

With market participants now pricing the end of the Federal Reserve’s hiking cycle, some commentators have suggested that this is reason enough for the U.S. dollar to depreciate in the coming months.

However, while this makes intuitive sense, the data are not as supportive. Looking at the Fed’s previous five tightening cycles over the past 30 years, although the average three-month return of the U.S. Dollar Index after the last hike was positive, over six months it was negative...

The cost of hedging foreign assets has changed significantly since pre-COVID; investors may choose to respond in four ways.

The rapid increase in central bank policy rates globally has meant that the cost of hedging currency exposure on foreign assets for many investors has changed significantly. For many years, policy rates across the major economies were low and the differential between countries minimal. This meant that investors could allocate capital to assets denominated in foreign currencies and mitigate the currency risk for little to no cost. For example, just before the outbreak of...