In late February of this year, US President Trump announced military action against Iran. This geopolitical event quickly triggered safe-haven buying in the market, sparking a massive wave of dollar purchases globally. The core support for this round of dollar strengthening comes from the reshaping of the global energy landscape: the US, as an energy-sufficient economy, has fully benefited from this round of geopolitical turmoil, while European and Asian economies, which are highly dependent on energy imports, have suffered significant economic pressure. This divergence in strength has led to a strengthening of the dollar, which has gained the initial impetus for its rise. Entering June, the US dollar received another boost. Newly appointed Federal Reserve Chairman Kevin Warsh released clear hawkish signals, leading the market to widely anticipate that he would initiate interest rate hikes to rebuild the Fed's credibility in combating inflation and restore market confidence in its monetary policy. This expectation further solidified the dollar's strength. The optimism surrounding the dollar that emerged in the market this summer continued to ferment and was fully transmitted to institutional buyers. Multiple institutional calculations show that the foreign exchange hedging ratios of European asset management institutions for cross-border dollar assets such as US stocks and bonds have continued to decline, falling to their lowest level since February 2025. The statistics cited in this article, released by the Danish Central Bank, primarily track the foreign exchange hedging ratios of long-term institutional investors such as Danish insurance companies and pension funds, providing an important window into European buyer behavior. Although this data focuses only on the Danish market and cannot fully represent the vast European buyer market, it accurately captured and reflected key market anomalies in March and April 2025, making it highly valuable for reference. Before the "Liberation Day" tariff policy was implemented last year, Danish institutions maintained a hedging ratio of 63% for their dollar assets. After the tariff policy was introduced, market risks escalated rapidly, and institutions urgently increased their hedging positions, with the hedging ratio surging to 74% by the end of April within just one month. In contrast, by the end of June this year, the hedging ratio of Danish institutions' dollar assets had fallen back to 64%. This data change fully reflects the current mainstream trading mentality: the vast majority of institutions are convinced that the fundamentals of the US dollar are solid and will continue its strong upward trend, thus actively reducing hedging positions and lowering hedging costs. European asset management institutions have significantly insufficient hedging positions, posing hidden risks. Based on the latest data and historical trends, European buy-side institutions' hedging allocation of cross-border dollar assets currently shows a clear state of "insufficient hedging." Reviewing long-term historical data from 2015 to the present reveals that if hedging costs were the sole basis for institutional allocation decisions, the current dollar hedging ratio of European institutions should be much higher than it is now. Currently, hedging costs in the market are relatively low. The annualized cost of hedging using a 3-month EUR/USD forward contract is only 1.5%, which is within a relatively favorable range. Based on historical correlation patterns, a reasonable hedging ratio at this cost level should be 73%, but the latest statistics from June this year show an actual hedging ratio of only 64%, a significant discrepancy. This data divergence raises a core question in the market: Will historical patterns repeat themselves? If an unexpected risk event occurs in the US, will it trigger another round of concentrated and significant increases in dollar hedging by European institutions, leading to a new round of rapid dollar selling and sharp exchange rate fluctuations? Currently, we have no clear clues to predict the specific type and timing of potential risk triggers, but the latest data from the Polymarket trading market warrants close attention. Platform data shows that the market estimates a 30% probability that President Trump will declare a national emergency before the end of this year, likely triggered by external interference or disruption to the US election process. The key time point corresponding to this risk is the US midterm election on November 3rd. The foreign exchange options market has already fully priced in this event risk, with implied volatility on the day of the election already 1.5 times that of a normal trading day, highlighting the market's high level of vigilance regarding election risks. While the aforementioned tail risk scenario is not included in our core foreign exchange benchmark forecast framework, the current extremely low dollar hedging ratio just barely supports our year-end euro/dollar exchange rate forecast of 1.18. The core underlying logic of this forecast is that the Federal Reserve will maintain its monetary policy unchanged for the remainder of 2026, keeping interest rates and policy pace stable.