Corporate FX Hedge Ratios Soar as Volatility Bites: Survey

Corporate treasuries have significantly increased their hedge ratios both sides of the Atlantic as FX volatility continues to bite, with a majority experiencing losses from price action in Q2.

The latest MillTech Quarterly Corporate Hedging Monitor finds that the average hedge ratio has risen to 57%, the highest it has been since the firm starting publishing reports and up from 52% the previous two quarters. This was driven largely by the US hedge ratio rising to 61% in Q2 from just 39% in Q1 (it was 46% in Q2 2024) – the average UK corporate hedge ratio actually fell to 53% from 56% in Q1.

The survey reveals that 51% of corporates report negative impact from dollar weakness, while 62% experienced losses “from market volatility so far this year”. Average hedge tenors across the US and UK are largely unchanged in the latest survey, although there was a slight shift to seven-to-nine months from the 10-12 months bucket. Within this there was again divergence, however, with 19% UK corporates hedging in the one-to-three month bucket (up from 12% in Q1), largely at the expense of four-to-six months (36% from 42%). In contrast, US corporates hedging at the shorter end fell to 7% from 12%, it was also slightly lower in the four-to-six month bucket (48% from 50%), as well as seven-to-nine months (35% to 36%), but longer end hedging was popular with 10% of US corporates hedging in the 10-12 month tenors, up from just 2% in the previous quarter.

Perhaps a little surprisingly, given how much of the volatility stems from the US political scene, the most cited external factor on hedging decisions by US and UK corporates was central bank policy at 20% (up from 13% in Q1). Volatility as an external factor fell to just 14% from 24% in Q1, perhaps reflecting how markets reacted less to US policy swings in that quarter. US corporates were more concerned with central bank policy than their UK peers, the latter was entirely responsible for the drop in concern over volatility.

There was some notable honesty from a group of respondents, when asked if their businesses’ FX strategy was well prepared for the market volatility, 11% of respondents answered “not at all”, mainly driven by 15% of UK corporates providing this answer, compared to 8% in the US. Overall, 38% of firms said they were well prepared and 46% said they were covered but experienced higher than expected losses.

“Q2 also saw a clear pivot in corporate focus towards central bank policy,” observes Eric Huttman, CEO of MillTech. “With diverging interest rate trajectories, particularly between the Fed, ECB, and Bank of England, CFOs shifted their attention to monetary signals, recalibrating hedging strategies around policy expectations rather than short-term price swings. Firms are bracing for the financial impact of rate cuts, currency differentials, and shifting yield curves.

“As Q3 unfolds, central bank policy and trade tensions remain key drivers of FX risk,” he continues. “The Bank of England’s recent rate cut to 4% signals a clear shift toward monetary easing, aligning more closely with the ECB’s path, while the Federal Reserve continues to hold firm. This divergence in interest rate trajectories is likely to fuel ongoing volatility across major currency pairs, complicating forecasting for corporate treasurers.

“At the same time, tariff-related pressures show no signs of easing, keeping trade-linked FX risk firmly in play,” he concludes. “In this environment, hedging remains the most effective defence. Firms with robust, responsive strategies are better positioned to absorb external shocks and protect margins. With policy shifts and geopolitical risks unlikely to stabilise soon, proactive currency risk management is no longer a luxury: it’s a necessity.”