Corporates Suffering in Volatile FX World: Survey

Corporates are suffering higher losses on their unhedged FX risk and are looking to FX options to alleviate the pain somewhat, according to the latest MillTechFX Quarterly Corporate Hedging Monitor, which also predicts further stress for those that do not hedge as volatility continues into 2025.

The report, which is based upon a survey taken of 250 senior decision makers at corporates in the UK and US, says that 76% suffered a net loss on their unhedged FX risk in 2024, with 24% judging them to be “significant” (24% also said they had no losses). “Significant” losses were more felt by UK corporates, 27%, than US (19%).

Although there have clearly been impacts from the increased volatility, the report highlights something of a divide in the corporate world, albeit one in which more care over hedging is apparent. 26% of those surveyed said they plan to increase hedge ratios in 2025 – hedge ratios were already at their highest for 2024 in the last quarter – but the same percentage said they plan to decrease their hedge ratio. The average hedge ratio in Q4 across both UK and US corporates was 52%, up from 47% in Q2 and Q3, as well as slightly up on the 51% recorded in Q1 2024.

It was a less divided picture when looking at hedge length, where 32% of those that do hedge said they plan to increase hedge length and 22% said they plan to decrease it. While MillTechFX says in the report that hedge lengths “remained high”, the mean hedge length in Q4 was actually the second lowest for the year at 6.47 months, with the Q2 report indicating it was 6.45 months In Q1 2024 the average hedge length was 6.84 months and in Q3 it was 6.86 months.

While the report highlights how 32% of respondents plan to buy more FX options to help manage risk, it is also notable that 24% say they plan to reduce the amount of options they buy, this tallies to a degree with the finding that, after a period of elevated concern, the cost of hedging has diminished as an external factor influencing hedging decisions, back to 7% from ( and 12% respectively in Q3 and Q2 (it was 7% in Q1).

A little strangely, in response to the question, “given increased volatility last year, how do you plan on adjusting your hedging strategies in 2025?”, 29% of respondents replied “we plan to change our banking partner”. Presumably this was a box that could be ticked in the survey and it may reflect some banks’ unwillingness to provide services in FX options, although it is not clear why a bank would decline to do so.

One answer could be the finding that credit availability is the biggest external factor influencing hedging decisions, with 20% citing this (from 16% in Q3, 21% in Q2 and 16% in Q1). In its commentary, MIllTechFX observes, “[This points] to an intensification of the credit crunch we’ve witnessed throughout 2024. Tightening lending criteria and more expensive borrowing costs are a common feature of turbulent economic times [and] tends to cause liquidity headaches and restrict investment opportunities.”

The next biggest external factors influencing hedging policies were inflation at 18% (unchanged from Q3 and at the highest for 2024), followed by central bank policy and geopolitics, both at 16%. Bearing this in mind, it may be a little surprising to see that only 12% cited volatility as a concern – the lowest it registered in 2024.

“As we head further into 2025, those hoping for respite from currency volatility are likely to be disappointed,” says Eric Huttman, CEO of MillTechFX. “FX volatility looks likely to continue as President Trump embarks upon his first round of tariffs, despite Canada and Mexico narrowly avoiding them for now. These shifts in US economic policy are set to continue reverberating through currency markets, supporting volatility.

“For corporates, this will likely mean further changes in FX risk management strategy, causing particular stress for those who don’t hedge their FX risk,” he concludes.