The “dollar’s natural hedge” refers to the longstanding negative correlation between US asset prices (notably those of equities and medium and long-term bonds) and the dollar exchange rate. For a non-US investor, a negative correlation between the S&P 500 and the dollar (against a basket of currencies) means that losses on US assets tend to be cushioned by a rise in the dollar against the investor’s local currency. Naturally, this also means that non-US investors earn lower returns than US investors on dollar-denominated assets when markets rise. This implicit natural hedge began to weaken as of 4 March … (full story)
