Hover is something that comes out of the gesture recognition engine on macOS so it's more complicated than simply the cursor is now over a link. It matters if more than one finger (multitouch) is detected and it also needs a stable input.
One rare cause of this is flakey USB that causes a (possibly invisible) shake to the input - this is filtered out, so you might not see it.
The leading cause of this is when there are more than one device connected. For Macs with a trackpad, if there is motion detected on the build in trackpad, the external device may be demoted to "secondary device"
I learned this when the same issue plagued me for a few days. The cause and solution was similar as well - little did I know, the USB-C dock I had my Mac plugged into at work also had a USB mouse plugged into it, hidden behind the monitors. As soon as I unplugged that mouse, the issue immediately went away.
If anyone is having this issue, try seeing if there is a mouse or wireless mouse dongle plugged in that you might have forgotten about. Also, the act of disconnecting a USB device or Bluetooth device and re-connecting it (which is a different / quicker step than unpairing and pairing) that also seems to cure when a hover motion doesn't get detected.