(Bloomberg) — Overseas investors are slashing their dollar exposure at “an unprecedented pace” as they put on currency hedges when buying US stocks and bonds, according to a Deutsche Bank AG analysis of exchange-traded funds.

For the first time this decade, flows into dollar-hedged ETFs that buy US assets have exceeded those into unhedged funds, George Saravelos, global head of currency research at the bank, wrote in a note distributed Monday, citing data from more than 500 funds.

As Saravelos sees it, the hedging explains why the dollar remains weak even as international investors have again plowed money into US assets after President Donald Trump’s tariffs roiled markets earlier this year. At the time, speculation swirled that the trade war risked souring investors on US stocks, bonds and the greenback.

“The FX implications are clear: foreigners may have returned to buying US assets (albeit as we wrote last week at a reduced pace), but they don’t want the dollar exposure that goes with it,” Saravelos wrote. “For every hedged dollar asset that is bought, an equivalent amount of currency is sold to remove the FX risk.”

The dollar-hedged flows accounted for more than 80% of the total ETF inflows to US stocks and 50% to American fixed-income markets, according to Saravelos.

The Bloomberg Dollar Spot Index is trading near its 2025 low after tumbling about 9% this year. Meanwhile, foreigners’ holdings of US stocks and bonds soared to a record in June, after a decline from February to April, according to Treasury Department figures.

“The dollar is falling because the unhedged flow picture looks very weak,” wrote Saravelos.

For overseas money managers, the cost of hedging dollar assets will become cheaper as the Federal Reserve is widely expected to resume cutting interest rates this week, Saravelos said.

Traders expect the Fed to lower borrowing costs Wednesday for the first time this year and follow with a series of reductions extending into next year amid signs of weakness in the US job market.

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