Dealers warn of capital squeeze from increased FX hedging
Sharp rise in uncollateralised buy-side hedges could restrict banks’ ability to take on positions
A surge in uncollateralised foreign exchange forwards hedging from buy-side clients could put bank balance sheets under pressure, dealers warn.
FX hedge ratios at asset managers and pension funds have not materially increased in 2025, despite the selloff in the US dollar in the second quarter. This may change, though, as narrowing interest rate differentials could reduce costs for foreign investors hedging their US assets through FX forwards.
FX forwards and swaps trades between dealers and
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