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FX Markets Europe: Buy-siders are adopting more responsive FX hedging strategies after correlations broke down
Pension funds and insurers are increasingly shifting from passive currency hedging overlays to more dynamic hedging after traditional inverse correlations broke down during volatility caused by US ‘Liberation Day’ tariffs earlier this year, according to senior buy-side FX traders.
Unlike a passive hedge, which maintains a fixed hedge ratio, dynamic hedging systematically adjusts the ratio for a currency pair frequently in response to changes in exposure and market volatility.
James Pearmund, a
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