Analysis-Foreign investors can exploit cheaper dollar hedges as Fed easing resumes

By Laura Matthews and Saqib Iqbal Ahmed

NEW YORK (Reuters) -The long-awaited resumption of the Federal Reserve’s rate-cutting cycle is likely to cheapen hedging of dollar exposure for foreign investors and increase their motivation to guard more of their U.S. assets against further currency weakness.

In September, the U.S. central bank lowered interest rates by an expected 25 basis points to 4.00-4.25% on labor market concerns and indicated more cuts would follow later this year.

That cut narrows the interest-rate differential between the U.S. and other developed countries, which helps to lower the hedging costs for foreign pensions, sovereign funds and other institutional investors, managers and analysts said.

The ICE U.S. Dollar Index is down about 10% this year, partially driven by