Global Companies Enhance Currency Hedging Strategies Amidst Market Volatility
Businesses have been significantly impacted by currency fluctuations, prompting them to reassess and adjust their hedging methodologies. A survey conducted by MillTechFX, a division of Millennium Global Investments Ltd., found that over 75% of senior finance executives in the US and UK incurred losses resulting from unmanaged currency exposure in 2024.
In response, firms are increasingly utilizing options, which provide the flexibility to buy or sell currencies without obligation. A significant proportion of US and UK companies (nearly a third) intend to extend the duration of their foreign exchange hedges.
"Unanticipated and drastic exchange rate shifts elevate market uncertainty," noted MillTechFX CEO Eric Huttman. "Companies demonstrate a growing need for protection and flexibility, making increased FX options and extended hedge lengths the prevalent hedging strategies."
The survey revealed that 32% of respondents plan to acquire more foreign-exchange options, while 26% aim to increase hedge ratios. Factors influencing currency hedging programs include bank credit availability, inflation, and geopolitical events.
In the US, multinational profits, especially in the fourth quarter of 2024, were negatively impacted by the robust US dollar. A strong domestic currency generally detracts from foreign sales and elevates costs for firms importing commodities priced in dollars. The Bloomberg Dollar Spot Index registered an 8% increase in 2024, its strongest annual gain since 2015.
UK corporations also faced challenges. The British pound reached a two-year high against the dollar in September, but plummeted towards the year's end due to investor concerns about government spending under the Labour government. Sterling has gained around 0.7% against the dollar in 2025, lagging behind most Group-of-10 peers.
"Heightened volatility characterized the fourth quarter," stated Huttman, highlighting increased currency fluctuations preceding the US election. Implied volatility against dollar swings reached its pandemic peak before the November 5th election. The Deutsche Bank FX Volatility Indicator, a separate gauge of global currency fluctuations, spiked in December to its highest level in over a year.
MillTechFX surveyed 250 senior finance executives at US and UK companies with market capitalizations ranging from $50 million to $1 billion between January 14th and 27th, 2025.