If you’ve been investing in U.S. assets or USD-denominated investments this year, you’d have felt the pinch. The U.S. dollar has depreciated nearly 8% against the euro and Japanese yen, and even against the Singapore dollar, it’s down about 5% year-to-date.
So if you’re a Singaporean who earns and spends in SGD but invests in USD assets, your 5% gain in U.S. markets this year may have been completely wiped out by currency losses. This is the nature of currency risk — it’s always present, but only truly felt during sharp FX moves. And during such times, more investors start asking: Should I hedge my currency exposure?
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Should You Hedge Against a Weakening USD?
The Monetary Authority of Singapore (MAS), our central bank, uses an exchange rate–based monetary policy, which is rare globally. It manages the SGD against a basket of currencies, and USD is a major component of that basket.
Why? Because Singapore is an import-heavy economy — from food to energy — and a strong SGD helps control imported inflation. That’s why, over the long term, MAS maintains a modest and gradual appreciation bias for the SGD.
In its April 2025 policy statement, MAS said:
MAS will continue with the policy of a modest and gradual appreciation of the S$NEER policy band. However, the rate of appreciation will be reduced slightly.
So, while SGD may not strengthen as quickly going forward (due to global rate cuts), its long-term upward trend still exists. Which brings us back to the core question: Is it worth hedging the USD?
I don’t think it’s necessary to hedge against the USD at this moment. Currency movements are cyclical, and the USDSGD pair has swung significantly over the past five years. In fact, we’ve seen strong USD rallies too — and in such cases, your hedge would backfire and start losing money, becoming a drag on your portfolio.
But if you still prefer to hedge, here are a few ways to do it — along with their trade-offs:
#1 Short USD/SGD Pair
This is the cleanest and most direct hedge — but also the most technical.
If a large portion of your wealth is in USD while you spend in SGD, you can short the USD/SGD pair using a forex trading account or CFD platform. The idea is simple: gains from your short position should offset the forex losses on your USD holdings.
However, this strategy isn’t as straightforward in practice. You need to decide on your exposure, manage leverage, monitor the position, and eventually close it. This is not a “set and forget” position. Forex trading usually involves leverage, so there are margin requirements, interest costs, and capital tied up — all of which can eat into your returns. With interest rates still elevated, the financing cost alone can offset your gains.
✔ Offsets USD weakness directly
✘ Requires understanding of forex mechanics and a forex trading account
✘ Not a “buy-and-hold” strategy — positions must be actively managed
✘ Typically leveraged — which means margin requirements, interest costs, and risk of liquidation
#2 Buy a US Dollar Bearish ETF
A simpler route is to buy an ETF that shorts the USD. One such fund is the Invesco DB US Dollar Index Bearish Fund (UDN). It shorts the USD against a basket of six currencies: the euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc. The ETF also earns some yield from investing in US Treasuries and money market instruments.
But here’s the catch: SGD is not in this basket. So UDN is not a clean hedge for Singaporean investors. The USD can weaken against the SGD while strengthening against the other six currencies — causing UDN to lose money even though you’re experiencing forex losses in your portfolio.
Also, UDN isn’t cheap. It charges 0.78% annually in expenses. And despite its +9% return this year, its 10-year performance is negative. This isn’t a tool for long-term hedging — it only works if you get the timing right, which is difficult.
✔ Easy to buy on the stock exchange
✘ No SGD in the basket — so it’s an imperfect hedge
✘ USD could weaken against SGD but strengthen against others — UDN may still lose money
✘ Annual expense ratio of 0.78%
✘ Long-term returns are poor — UDN has lost money over the past 10 years despite this year’s +9% rally
#3 Buy Gold
Gold is often seen as a hedge against fiat currency debasement — especially the USD. It doesn’t require a crisis to pay off either. This year, gold has surged 27%, coinciding with USD weakness.
Why? Gold is priced in USD. So if the USD weakens, it takes more USD to buy the same amount of gold — which pushes gold prices higher. But gold is not a clean USD hedge, because many other forces also affect its price. Demand from central banks, sovereign wealth funds, and retail investors (through bullion or jewelry) all play a role.
Gold also acts as a crisis hedge, which is useful — but unpredictable. So while it can help diversify your portfolio and reduce reliance on fiat currencies, it’s not ideal if your goal is precise USD exposure hedging.
✔ Has an inverse relationship with USD over time
✔ Viewed as a store of value globally
✘ Not a precise hedge — driven by many factors: central bank buying, jewelry demand, geopolitical risk
✘ May move in the same direction as USD in certain regimes
#4 Invest in SGD-Hedged Unit Trusts
Unit trusts offer SGD-hedged share classes, where the fund manager actively uses forex strategies to reduce currency volatility. This lets you invest globally while keeping returns relatively stable in SGD. (This was one of the reasons to invest in higher-fee unit trusts.)
This is a convenient solution for those who want passive exposure to global markets without worrying about FX risk. But there are trade-offs. Hedging costs money, and while it smooths currency volatility, it may slightly reduce long-term returns. Also, not all funds offer SGD-hedged classes, and the product shelf is more limited.
For example, the Infinity US 500 Stock Index Fund is priced in SGD, but it’s not hedged — it simply converts USD to SGD. So investors still bear the full currency risk. Simply put, you may not find a SGD-hedged unit trust you like.
✔ Simple and hands-off
✔ Designed to minimize currency volatility
✘ Not all funds offer SGD-hedged classes
✘ Hedging costs reduce long-term returns slightly
✘ May not be available for certain strategies (e.g. S&P 500 index funds)
To hedge of not to hedge
I hope this gives you a clearer picture: hedging isn’t just about betting against a weakening USD. It’s not easy to implement well — it comes with costs, risks, and trade-offs. And if you get the timing wrong, the hedge can hurt you more than help.
Worse, if you use an imperfect hedge like UDN or gold, you may end up introducing new risks without removing the old ones. So while the instinct to hedge is natural, especially after a sharp currency move, it’s important to ask:
- What risk are you trying to eliminate?
- Is the hedge precise enough?
- What is the cost of carrying it?
In most cases, it may be better to accept some currency volatility as part of investing internationally — and focus instead on long-term strategy rather than short-term noise.
