Unhedged – “Hedging the Dollar” (September 23, 2025) Financial Times & Pushkin Industries | Hosts: Katie Martin & Robert Armstrong
Overview: Why Is Everyone Hedging the Dollar?
This episode dives into the paradox of global capital flows in 2025: despite continued foreign appetite for U.S. assets, the U.S. dollar has declined about 10% this year. Hosts Katie Martin and Robert Armstrong unravel why international investors are suddenly hedging dollar exposure—and what this signals about global anxieties over U.S. monetary policy, fiscal outlook, and shifting political winds at the Federal Reserve.
Key Discussion Points
1. The U.S. Dollar Slumps, But Investors Still Want American Assets
- Context: The U.S. dollar is down ~10% this year despite steady foreign inflows into U.S. stocks and bonds.
- Key Insight: Foreign investors are hedging out their dollar currency risk while buying U.S. assets—marking a dramatic change from the past decade.
- Katie Martin [00:39]: “There's a but. Investors are buying other currencies when they buy US stocks to do what boring people like us call hedging. Hedging is the new not hedging...”
2. What Sparked the Sudden Hedging Craze?
- Background: For years, buying U.S. assets and holding dollars was a “one-way bet”—both stocks and the dollar rose, so nobody hedged.
- Turning Point: In Jan–June 2025, the dollar fell 10%, waking up foreign investors to their currency exposure.
- Robert Armstrong [02:37]: “It was like everyone simultaneously woke up to the fact that if you live abroad and you buy American assets, you are in fact taking currency risk.”
3. Deutsche Bank’s Research: From Zero to 80% Hedged
- Katie Martin [03:48]: “At the start of this year, hedging rates in U.S. assets... was roughly zero ...now more than 80% of inflows into the US are hedged. That's massive.”
- This sea change shows deep market unease about U.S. currency exposure.
4. Weakening Fundamentals: Interest Rates, Fiscal Concerns, and “Trumpification”
- The Fed has cut interest rates, narrowing the gap with other central banks and pressuring the dollar.
- The arrival of Fed appointee Stephen Mirren—”Trump’s man” on the committee—signaled a push for even deeper rate cuts.
- On Stephen Mirren’s “dot plot”:
- Katie Martin [08:54]: “It's Steve Mirren's first day at the Fed and suddenly a dot has appeared that says that by the end of this year we need one and a quarter percentage points more of interest rate cuts... which is only what you do when everything is terrible and fire is raining from the sky.”
- Mounting hedging is also a bet against U.S. governance, with the Fed’s independence in question.
5. The Self-Fulfilling Prophecy: Hedging Fuels Dollar Weakness
- When investors hedge, they sell dollars—adding to downward pressure.
- Robert Armstrong [10:45]: “Lots of people hedging dollars creates downward pressure on the dollar.”
6. Global Fiscal, Political, and Currency Backdrop
- Other major economies (Europe, Japan) are not looking much better, with their own fiscal/ political dramas (e.g., France).
- Even so, the euro holds steady, signaling that investors are particularly sour on the dollar right now.
- About half of U.S. government bond inflows are now hedged, a significant increase.
7. The Trump “Wish List”—And Why Markets Are (Sort Of) Granting It
- Trump’s agenda favors a weaker dollar and high stocks—exactly what's happening.
- Despite talk of “market vigilantes” (markets punishing bad policies), the current dynamic is delivering a strong stock market and a soft dollar.
- Katie Martin [14:36]: “Not only are they giving Trump a pass by being... quite relaxed and not particularly volatile, but they're actually rewarding him giving exactly what he wants, which is higher stocks and a weaker dollar.”
8. Has Currency Hedging Solved Everything?
- Trade balance hasn’t shifted materially despite a weaker dollar and tariffs.
- Robert Armstrong [16:43]: “The weaker dollar has not bought him more balanced trade flows… People are just paying the tariffs and continuing to buy more stuff from abroad.”
9. Will the Dollar Keep Falling? Making the “Impossible” Prediction
- Katie Martin [18:36]: “I think dollar lower into the end of this year...The euro will end this year at about $1.20. I'll take the over on that and say $1.22.”
- Robert Armstrong [18:52]: “Just to be contrary, I think the dollar strengthens a little bit... the markets have shown that they absorb these things and talk themselves into saying things will be fine.”
- Both agree: Predicting currencies is a mug’s game. Their own track record? Terrible.
Notable Quotes & Memorable Moments
Currency Hedging Revelation
- Robert Armstrong [02:37]: “If you're sitting in America and you buy, I don't know, Thai stocks, you know perfectly well you better think about the Thai baht. You don't naturally think about it ...about the dollar until the dollar falls 10%.”
The “Dot Plot” Comedy
- Robert Armstrong [08:37]: “I laughed out loud when I saw the plot. It looks like a bunch of kids playing on the playground ...and the one reject kid none of the other dots will play with.”
- Katie Martin [08:54]: “It's Steve Mirren's first day at the Fed and suddenly a dot has appeared that says... we need one and a quarter percentage points more of interest rate cuts...”
On Market Vigilantes (or Lack Thereof)
- Katie Martin [14:36]: “The currencies market biting back, the bond market biting back. Actually not only are they giving Trump a pass... but they're actually rewarding him giving exactly what he wants.”
Currency Predictions and Humility
- Robert Armstrong [19:41]: “Everyone is wrong about currencies, but we managed to be even wronger than the average person. Wrongerer.”
- Katie Martin [19:34]: “It's terrible. Just don't... listen to us about anything, especially not currencies because everyone knows they are basically impossible.”
Long/Short Segment [20:49]
- Rob Armstrong: Short his own career path—a former journalist-turned-hedge fund trader just made $100 million, while Rob laments his switch from hedge funds to journalism.
- Katie Martin: Short “Matcha”—too many people are drinking it, it tastes like “silage,” and she’s appalled at its popularity.
- Comedic Interlude: Discussion about a “blue cheese martini” and the theory that strange American beverages are the real reason for the weak dollar.
TIMESTAMPS – Key Segments
- 00:39: Introduction to the hedging dollar paradox
- 02:37: Why currency hedging has surged in 2025
- 03:48: Deutsche Bank’s data: 80% of flows are hedged
- 06:33: Discussion on Stephen Mirren and politicization of the Fed
- 08:37: The infamous dot plot and its outlier
- 10:45: Hedging-caused downward dollar pressure
- 13:55: Other global fiscal dramas (esp. Europe/France)
- 14:36: Are markets rewarding Trump’s economic wishes?
- 16:43: Hedging hasn’t solved the U.S. trade deficit
- 18:36: Dollar predictions (with cautionary jokes)
- 20:49: Long/Short (career envy, matcha critique, blue cheese martinis)
Summary Takeaway
Unhedged’s hosts dissect why the global rush to hedge dollar exposure reflects deeper worries—not just about U.S. interest rates, but about fiscal responsibility, Fed independence, and the shifting political landscape. Even as markets deliver many of Trump’s stated goals (though not his trade dreams), the hosts caution that predicting currency direction is a game best played for laughs. Meanwhile, investors continue to buy American—just not the dollar itself.
For a vivid, irreverent weekly window into global finance, tune into “Unhedged” every Tuesday and Thursday.