Foreign investors can exploit cheaper dollar hedges as Fed easing resumes

Economic

Summary:

Fed rate cuts are making dollar hedging cheaper, pushing foreign investors to raise hedge ratios on U.S. assets as the dollar weakens and policy uncertainty grows.

The long-awaited resumption of the Federal Reserve's rate-cutting cycle is likely to cheapen hedging of dollar exposure for foreign investors and increase their motivation to guard more of their U.S. assets against further currency weakness.

In September, the U.S. central bank lowered interest rates by an expected 25 basis points to 4.00-4.25% on labor market concerns and indicated more cuts would follow later this year.

That cut narrows the interest-rate differential between the U.S. and other developed countries, which helps to lower the hedging costs for foreign pensions, sovereign funds and other institutional investors, managers and analysts said.

The ICE U.S. Dollar Index (.DXY) is down about 10% this year, partially driven by foreign investors increasing hedging activity on worries about the impact of U.S. trade and tariff policies on their U.S. assets, market participants said.

"There are some people that are watching it, that have been waiting for the resumption of the cutting cycle by the Fed," said Van Luu, global head of solutions strategy for fixed income and foreign exchange for Russell Investments in London.

"Now they are inclined to raise the hedge ratio, and they're waiting for the right moment or they're waiting for some kind of catalyst."

Hedging is a way to limit losses on an existing portfolio by using financial instruments such as derivatives to create an offsetting position. Since it often involves selling dollars via forwards or swaps, any rise in hedging activity can spell additional weakness for the beleaguered greenback.

NEW-FOUND NEED TO HEDGE

High hedging costs and a bullish view on the buck were two major factors suppressing FX hedging ratios in recent years, according to a June report from the Bank for International Settlements.

Years of dollar strength meant foreign investors could leave U.S. assets unhedged since it boosted their overall returns and was a source of diversification. Now that's set to change.

With the greenback down significantly this year and with more potential weakness on the horizon, hedging could help blunt the hurt from unfavorable FX moves.

Markets are pricing in about two more quarter-point rate cuts this year, which could incentivize investors who want to ramp up their hedges but have found the cost to do so a deterrent.

GUARDING MORE BUSINESS AGAINST CURRENCY SWINGS

Foreigners currently have more than $30 trillion invested in U.S. stocks and bonds, according to Morgan Stanley, $8 trillion of which is held by European investors.

Rising concerns over Fed leadership, its independence, and U.S. policy uncertainty have helped keep pressure on the dollar, even as U.S. stocks have rallied. The S&P 500 is up about 14% for the year, near a record high.

"The strong gains in U.S. (stock) market and the very sharp U.S. dollar falls are unusual but they’re not unheard of – we think an increase in hedging is part of the reason for this divergence," said Steve Dooley, head of market insights at Convera in Melbourne.

A July research note from Deutsche Bank showed that equity investors in Germany and Austria have increased their hedge ratios to 60-70% from 20-30% at the start of the year.

A new report from the Danish central bank showed that insurance companies and pension funds are shielding more than three quarters of their dollar investments from currency swings. The Deutsche note stated that some high-profile pension funds plan to top up those ratios after the summer.

"I think foreign investors are still inclined to hedge away their dollar exposure," Thierry Wizman, global FX and rates strategist at Macquarie in New York, said.

"So they will come out again at some point in the next few weeks ... you're going to see another round of dollar hedging by foreign institutions," he said.

Research from MillTechFX also shows that 86% of European corporates are currently hedging their forecastable currency risk, up from 67% in 2023, with their mean hedge ratio rising to 49% from 43%.

Joseph Hoffman, chief executive officer at Mesirow Currency Management, said the shift among international investors is not mainly about short-term interest-rate advantages, but is driven "more by a bearish structural view on the dollar rooted in the Fed’s policy, heightened political uncertainty, and persistent fiscal deficits."

WHAT'S MY COST?

Still, a lower cost of hedging will likely draw those investors who may have held off boosting hedges due to price considerations.

For instance, the 4% annual hedging cost for investors in Japan and Switzerland, based on current interest rates, remains a big hurdle. It costs other euro-based investors around 2% annually.

"I think there's like a psychological level that if the hedge cost goes to 1% or below, which is on the horizon for EUR investors over the next 12 months, people wouldn't worry about it as such," said Russell's Luu.

Source: reuters

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Warren Takunda

Stocks

Wall Street nudged past yesterday’s record highs in early trading Friday as investors continue to shrug off the U.S. government shutdown, now in its third day.

Futures for S&P 500, Nasdaq and the Dow Jones Industrial Average all added 0.2% before the bell. All three closed at record levels on Thursday, boosted by gains of chipmakers and artificial intelligence companies.

Markets have largely ignored the shutdown of the U.S. government after Democrat and Republican lawmakers failed to reach agreement on funding.

U.S. President Donald Trump and congressional leaders were not expected to meet again soon and the Democrats have held fast to their demands to preserve health care funding, warning of price spikes for millions of Americans nationwide.

The government shutdown means this week’s usual report on jobless claims was delayed. An even more consequential report, the monthly tally of jobs gains and losses that usually comes out the first Friday of every month, will also not arrive as scheduled.

That increases uncertainty when much on Wall Street is riding on investors’ expectation that the job market is slowing by enough to convince the Federal Reserve to keep cutting interest rates, but not by so much that it leads to a recession.

So far, the U.S. stock market has looked past the delays of such data. Shutdowns of the U.S. government have tended not to hurt the economy or stock market much, and the thinking is that this one could be similar, even if Trump has threatened large-scale firings of federal workers this time around.

Excitement around AI and the massive spending underway because of it are a major reason the U.S. stock market has hit record after record, along with hopes for easier interest rates. But AI stocks have become so dominant, and so much money has poured into the industry that worries are rising about a potential bubble that could eventually lead to disappointment for investors.

At midday in Europe, Germany’s DAX ticked down 0.2% and the CAC 40 in Paris fell back 0.1%. Britain’s FTSE 100 rose 0.6%.

In Asia, Japan’s Nikkei 225 closed nearly 1.9% higher at 45,769.50 as tech stocks gained despite data showing Japan’s unemployment rate rose 2.6% in August, the highest in 13 months and above the expected 2.4%.

Shares in Hitachi jumped 10.3% after it signed a memorandum of understanding with OpenAI to provide cooling systems for its data centers.

Stock exchanges in China and South Korea were closed Friday for holidays.

Hong Kong’s Hang Seng won back some earlier losses, ending 0.5% down to 27,140.92 as traders sold to lock in profits from Thursday’s gains.

Australia’s S&P/ASX 200 added nearly 0.5% to 8,987.40. India’s BSE Sensex rose less than 0.1%, while Taiwan’s Taiex edged 0.9% higher.

In energy markets, benchmark U.S. crude added 17 cents to $60.65 per barrel. Brent crude, the international standard, rose 21 cents to $64.32 per barrel.

Source: AP

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Adam

Commodity

Market Overview

Gold came under renewed pressure Friday as the U.S. dollar gained ground and equity markets extended their rally. Despite a partial U.S. government shutdown stretching into its third day, investors turned toward risk assets, diminishing demand for traditional safe havens.

The move followed Wall Street’s fresh record closes and upbeat sentiment across Asian markets, where strong earnings and resilient consumer data helped sustain risk-on momentum.

“Markets are looking past the shutdown and focusing on growth indicators,” said a commodities strategist at a London-based investment firm. “That shift has capped near-term demand for gold.”

Fed Rate Cut Bets Provide Support

Even with weaker safe-haven flows, expectations of monetary easing by the Federal Reserve continue to underpin the gold market. The ADP employment report showed private payrolls fell by 32,000 in September, the sharpest decline since March 2023, while August figures were revised to show a contraction rather than growth.

Traders are now pricing in two additional rate cuts before the end of the year, according to CME FedWatch data.

Lower borrowing costs typically weigh on the dollar and enhance the appeal of non-yielding assets such as gold. With the shutdown threatening to delay critical data releases—including the Nonfarm Payrolls report—investors are increasingly relying on Fed commentary for direction.

Silver Holds Firm Amid Dovish Outlook

Silver traded modestly higher, supported by the exact dovish Fed expectations and broader geopolitical risks that have limited downside pressure across the precious metals sector. However, gains remain constrained by the strength of the equity market and the dollar’s rebound.

Analysts highlight silver’s dual role: industrial demand remains vulnerable to slowing global activity, while safe-haven buying is providing balance.

“Silver is more sensitive to manufacturing cycles, but right now, monetary policy and geopolitical dynamics are doing most of the heavy lifting,” noted a senior market analyst at a New York-based fund.

Outlook

Gold remains on track for a seventh consecutive weekly gain, with pullbacks seen as opportunities to accumulate. Yet the interplay between stronger equities, Fed policy bets, and ongoing geopolitical risks will dictate whether momentum can carry further. Silver is likely to mirror these trends, trading within a narrow range until clearer policy signals or economic data emerge.

Short-Term Forecast

Gold holds near $3,860 with resistance at $3,895, while silver trades around $47.28, supported at $46.69. Momentum signals consolidation, with upside bias if key resistance levels break.

Gold Prices Forecast: Technical Analysis

Gold – Chart

Gold is trading near $3,860, showing resilience after bouncing from support at $3,844 and holding above its ascending trendline. The 50-EMA ($3,841) is providing a key floor, keeping the bullish structure intact. Price action, however, faces strong resistance at $3,895, where repeated rejections signal heavy supply.

A decisive close above this barrier could open the path toward $3,916 and $3,944, while a breakdown below $3,844 risks a move toward $3,821 and $3,793.Momentum remains neutral with the RSI at 51, suggesting consolidation before the next breakout.

For traders, the key lies in whether gold can sustain above its trendline, with a bullish bias favored on a confirmed close above $3,895.

Silver (XAG/USD) Price Forecast: Technical Outlook

Silver – Chart

Silver is trading near $47.28, showing signs of recovery after bouncing from support at $46.69, which aligns with both the ascending trendline and the 50-EMA. This confluence zone has acted as a strong base, keeping the bullish bias intact. Resistance is now seen at $47.84, with a break above exposing the higher barrier at $48.08.

Candlestick action shows buyers stepping back in after a brief dip, supported by the RSI at 55, which indicates that momentum is tilting bullish without being overextended.

As long as silver holds above $46.69, the path of least resistance remains upward. A close below this level, however, could drag prices back toward $45.91 and $45.26.

Source: fxempire

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Glendon

Economic

Forex

German Chancellor Friedrich Merz on Friday implored Germans to either embrace uncomfortable reforms or watch their economy fade.

“Our nation is in the midst of an important, perhaps decisive phase in its modern history,” Merz said in a speech in Saarbruecken marking 35 years since German reunification. “Many things must change if they are to remain as good as they are, or even to improve.”

Merz’s plea reflects Germany’s deep-rooted fear that its once-powerful business model is eroding, with high energy prices, cheap Chinese electric vehicles and spiraling defense costs all battering the country’s industries.

Despite this, the chancellor has struggled to unite his coalition on a solution, as his conservative camp butts heads with its center-left partners.

The remarks were unusual given the setting — an event to celebrate German reunification. German chancellors typically use the anniversary — which this year featured French President Emmanuel Macron — to discuss the still-difficult relationship between the former West Germany and the ex-communist eastern states.

Merz nodded at the history, encouraging Germans to come together once again in the present.

“After 35 years of German unity — and in a difficult time for our country — we should regroup and look forward with confidence and energy,” Merz said. “Let us make a joint effort for new unity in our country.”

But he also used the speech to sell some political priorities, including rebuilding Germany’s military.

“We must learn to defend ourselves again,” Merz said, following a series of drone sightings near critical infrastructure sites that have alarmed German authorities. European leaders discussed similar airspace violations during two summits in Copenhagen this week, calling the incidents part of Russia’s hybrid war on western allies.

Merz’s latest pitch for reform, which the chancellery carefully orchestrated, reveals the deepening anxiety in Berlin about the country’s economic weakness and divisive mood.

Germany’s struggling economy has faced repeated setbacks of late, complicating Merz’s promise to reignite growth. After a strong start to 2025, output shrank 0.3% in the second quarter and is only likely to edge up slightly over the year as a whole.

The Bundesbank sees gross domestic product rising slightly between July and September as drags from trade with the US fade. With a US-European Union tariff accord reducing uncertainty, the outlook for Germany’s economy among firms has been improving.

Still, Merz’s coalition is mired in divisions, especially over potential reforms to Germany’s welfare state. The chancellor’s Christian Democratic Union and its sister party, the Christian Social Union, are pushing for revisions, while the Social Democratic Party remains reluctant.

A two-day coalition retreat this week failed to produce any decisions on basic reforms.

The ruling alliance has also failed to stall the rise of the Alternative for Germany (AfD), the far-right party that has successfully tapped into voters’ migration concerns.

A Forsa survey published Tuesday showed the AfD had stretched its lead over Merz’s bloc to three percentage points for the first time, with 27% backing to the CDU/CSU’s 24%.

The SPD trailed in third at 13%, just ahead of the Greens and the Left party.

Additionally, Merz’s personal ratings have been consistently poor, even before the government took office in early May. In the Forsa poll, only 26% of respondents said they were satisfied with his performance as chancellor.

Source: Bloomberg Europe

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Adam

Stocks

The phenomenal rally in Netweb Technologies India shows no signs of slowing, as the stock continued its upward momentum in Friday’s session, gaining another 7% to hit a new record high of ₹4,336.70 apiece. This pushed the stock’s weekly gains to 14% so far.

Despite extreme volatility in the broader market in recent weeks, the small-cap stock continued to gain steam, driven by strong interest from Dalal Street investors. This surge has resulted in 20 all-time highs in just five weeks and a massive 175% surge in just six months, which has also positioned it among the top performers so far this year.

Besides, the rally comes at a time when larger-cap tech stocks continue to grind lower amid US visa fee concerns.

Investors appear confident in the company’s prospects amid the rapidly expanding AI and high-performance computing (HPC) space, where demand for advanced GPU-based platforms has surged across industries. The company has received multiple orders in this space in recent weeks, further strengthening its AI revenue outlook.

The company aims to grow its AI segment, which accounted for 29% of revenue in Q1FY26, up from just 7% two years ago. It expects the segment to expand at a 40% CAGR, consistent with past trends.

Multiple orders fuel a robust rally

Last week, the company received a purchase order for its Tyrone AI GPU Accelerated Systems. The order was awarded by one of the largest Indian-headquartered global providers of technology distribution and integrated supply chain solutions, though the company did not disclose the client’s name.

The order value is worth ₹450 crore, which is its second order following a Rs1,734 crore contract earlier this month for the supply of servers built on Nvidia’s Blackwell architecture.

Without disclosing the client's name, the company said it would set up an AI infrastructure facility using the latest GPU-accelerated platforms, with completion targeted for the first half of FY27.

Netweb will deliver these systems through its flagship Tyrone Camarero AI platform, purpose-built for large-scale generative AI, foundational model training, and exascale computing.

Analysts note that this order could fuel strong growth in both the current and next fiscal years. They estimate the order size to be nearly 102% of projected sales for the current financial year and 72% for the following year.

Strong topline visibility

As of June 30, 2025, the company’s order book stood at ₹4,142 crore. Driven by robust demand for artificial intelligence (AI) solutions, the company also posted a 100% year-on-year jump in profit after tax, reaching ₹30.5 crore in Q1FY26.

Management expects the latest orders to further boost revenues and profitability in the current and coming fiscal years.

Source: livemint

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Samantha Luan

Economic

Forex

Political

Retail industry leaders have called on the US Congress to swiftly end the ongoing federal government shutdown, warning that prolonged uncertainty could undermine consumer confidence ahead of the holiday season.The National Retail Federation (NRF) highlighted the risks to both shoppers and retailers if federal operations remain stalled.

Economic consequences of the shutdown

The government shutdown began on October 1, 2025, after Congress failed to approve funding for the 2026 fiscal year. Approximately 900,000 federal employees have been furloughed, with another 700,000 working without pay.Essential services such as Medicare, Medicaid, and the Transportation Security Administration continue to operate, but many agencies, including the National Institutes of Health and the Women, Infants, and Children (WIC) program, are partially or fully suspended.

A White House analysis suggests that the US economy could lose $15 billion in GDP per week if the shutdown continues, with potential job losses of 43,000 over a month.Consumer spending may drop by $30 billion during the same period, driven by both reduced federal worker income and wider economic effects.

Political deadlock behind the closure

The shutdown stems from a standoff between Senate Democrats and Republicans over health care funding, particularly subsidies under the Affordable Care Act.Democrats insist these subsidies must continue, while Republicans have blocked the extension, leaving millions at risk of sharply higher insurance premiums in 2026.Lawmakers have highlighted the partisan divide, with some moderates calling for compromise.Although critical operations such as weather forecasting and fossil fuel project approvals persist, funding lapses have disrupted many federal services, adding stress to federal staff and raising concerns about political manoeuvring.

Implications for retailers and consumers

The NRF warned that ongoing government disruption could affect consumer confidence and spending patterns during a crucial retail period. Suspension of federal services, including WIC and early childhood programmes, also has broader social and economic consequences.Retailers are urging Congress to restore full government operations quickly to mitigate these risks and maintain stability in the marketplace.As the shutdown continues, industry groups and consumer advocates are monitoring the situation closely, calling for an immediate resolution to avoid further economic and social disruptions.

"Retailers urge US Congress to reopen government before holidays" was originally created and published by Retail Insight Network, a GlobalData owned brand.The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.

Source: Yahoo Finance

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Adam

Commodity

Oil was on track for the biggest weekly decline since late June, ahead of an OPEC+ meeting that’s expected to result in the return of more idled barrels, exacerbating concerns around oversupply.

Brent edged higher toward $65 a barrel on Friday, but was still down around 8% for the week. West Texas Intermediate traded near $61. The group is scheduled to meet on Sunday to decide on output for November, and could discuss fast-tracking supply hikes as the alliance seeks to reclaim market share.

There are already early signs that global oversupply may be emerging in the Middle East, and the International Energy Agency expects the glut to swell to a record next year — in part due to the return of OPEC+ production. Some Wall Street banks predict Brent will slide into the $50s-a-barrel range.

Still, the potential output increase for November — first flagged at the start of the week — could already be priced into the market, according to Chris Weston, head of research at Pepperstone Group in Melbourne. “Our clients have turned net-long today and have been buying,” he said.

The Organization of the Petroleum Exporting Countries raised production by 400,000 barrels a day in September, formally unwinding output cuts made by the group and its allies in 2023, according to a Bloomberg survey. Saudi Arabia increased supply exactly in line with its OPEC+ quota for the month.

“We believe September marked a turning point, with the oil market now heading towards a sizeable surplus,” JPMorgan Chase & Co. analysts including Natasha Kaneva wrote in a research note.