European pension schemes holding US assets face an "unprecedented challenge", Isio chief investment officer, Barry Jones has warned, with many schemes now rethinking their foreign exchange (FX) trading following the introduction of US President Donald Trump's tariffs.

Jones noted that the dollar has been excellent long-term for capital preservation and as a safe haven, due to the dollar moving inversely to risk assets in times of market weakness.

However, he warned that although unhedged exposure to the US was something that overseas investors could rely on as a safety blanket, now, for the first time since the 1940s, that may no longer be the case.

“Trump’s tariff turmoil has tanked US markets and the dollar at the same time," he said, continuing: "European pension schemes without appropriate hedging strategies in place are in trouble.

"Earlier this year, in the immediate aftermath of Liberation Day, pension schemes were preoccupied with making sense of and navigating huge market moves.

"Now the initial storm has passed, they are quickly turning their attention to longer-term strategic currency positioning."

But Jones argued that pension schemes in vulnerable positions – with significant unhedged US exposure – could already have missed the boat, and may instead have to face the challenge of damage limitation.

"For other schemes with more salvageable positions, the time to act is now to reassess exposure to the dollar," he suggested.

"Dollar devaluation appears to be an end game goal for the Trump administration and we are seeing a range of different schemes reevaluate their currency hedging strategies as a result."

This article originally appeared in our sister title, Pensions Age.

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