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        The US Dollar Free Lunch Is Over. What Now? NOK Investors

        • We expect a multiyear US dollar bear market to develop, in which we expect the currency to drop at least 15% in the face of waning US economic exceptionalism and political reliability.
        • Given this view, we recommend that Norwegian kroner-based investors aggressively hedge the US dollar.
        • We suggest a dynamic, differentiated currency hedging framework that customizes hedge ratios by currency, as we believe the kroner’s performance will vary across currencies outside the US dollar.

        Investors who are unhedged to the US dollar have enjoyed a long period of higher returns and lower risk, but the dynamics have changed in 2025 and we believe the “new normal” will persist.

        Over a decade-long bull market, the US dollar’s real value increased against a broad range of currencies. Solid relative GDP growth and exceptional corporate earnings growth supported strong capital inflows, high US interest rates relative to other major countries, and the widespread view of the US dollar as a safe haven. The US Federal Reserve’s broad trade-weighted US dollar index rose 46.1% from its trough in 2011 to its peak in January 2025. For much of this period, the dollar also enjoyed historically negative correlations to risky assets.

        However, it is exceptionally difficult for us to see how the performance of the last 15 years can persist for the next 10 to 15 years — or even the next three to five. We believe this US dollar free lunch era is over.

        In fact, we believe the US dollar is headed towards a multiyear bear market that will see it underperform most global currencies. In addition, we expect the US dollar’s negative correlation with equity markets to diminish, as investors’ perception of the dollar as a safe haven weakens.

        Learn More About the Impacts on Norwegian Kroner-Based Investors by Downloading the Article

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