US Stock Market: Dollar rally gains support as global pension funds unwind FX hedges, easing pressure on greenback

Overseas pension funds in Canada, the Netherlands and Denmark are unwinding their US dollar hedges as hedging costs rise with US short-term rates sitting roughly 140 basis points above euro zone levels, supporting a stronger dollar. Hedge ratios have dropped by about five percentage points at some Danish funds and one percentage point at certain Canadian funds, reversing last year's hedging-led headwinds on the greenback. The trend reinforces expectations of a hawkish Fed under new chair Kevin Warsh and reduces urgency to hedge, which could keep US assets attractive and weigh on emerging market currencies including the rupee.