UK firms extend FX hedge lengths as pound rises against USD

Finance leaders at corporates are increasing their foreign exchange (FX) hedge ratios and lengths as a response to tariff-driven volatility, according to new research from MillTechFX.

The findings, drawn from the MillTechFX Hedging Monitor, highlight that 54% of surveyed finance leaders have extended hedge lengths and 43% have increased hedge ratios in their FX hedging programmes to provide additional financial protection. The survey, conducted in April 2025, included responses from 250 senior finance decision-makers from UK and US corporates.

Every business surveyed reported feeling the effects of tariff-driven market volatility, with 23% identifying a negative impact. The report notes a significant difference in experience between US and UK firms: 52% of US corporates experienced a negative impact, whereas 85% of UK corporates said the volatility had worked in their favour. This is thought to be linked to the falling value of the US dollar relative to the pound.

UK corporates have opted for longer hedge lengths, now averaging 6.57 months, the highest level recorded in the past year. This implies that UK businesses are looking to lock in FX rates for longer amid what they perceive as more favourable conditions for the pound. In contrast, US corporates have reduced both their average hedge lengths (down to 5.84 months) and hedge ratios (now at 39%), making them the lowest since MillTechFX began tracking these metrics last year. This may indicate a desire among US firms to introduce greater flexibility into their hedging programmes.

The data also show a geographical divergence in hedging strategies. Eric Huttman, Chief Executive Officer of MillTechFX, commented: "2025 got off to a frantic start with market uncertainty, driven by tariffs, creating volatility in the FX market and headaches for corporate CFOs in the first quarter."

He provided detail on recent currency movements: "The pound began the year around $1.2500, dipped to a low of $1.2100 on January 13, and then rallied to a high of $1.3014 by mid-March, marking a 3.5% year-to-date gain by the end of Q1. ​The US dollar experienced its steepest early-year decline since 1989, with the Dollar Index (DXY) dropping 8.4% due to aggressive trade policies, economic contraction and investor concerns over potential US withdrawal from the IMF. Meanwhile, the euro rose sharply, gaining nearly 10% against the US dollar, driven by ECB rate cuts, strong eurozone exports, and a major German fiscal stimulus."

Despite market movements, corporate FX hedge ratios overall held steady from the previous quarter at 52%, with a slight increase in hedge lengths from 6.5 months to 6.6 months. Huttman noted, "However, when you take a closer look, there is notable geographical divergence. US corporates' hedge lengths and hedge ratios are the lowest since we started tracking them a year ago, which means they're protecting less of their exposure and for shorter periods, perhaps to build flexibility into their hedging programmes. Meanwhile, UK corporates' hedge lengths are the longest they have been since last year, suggesting they're locking in rates for longer, possibly because they're more favourable for the pound due to the weaker dollar."

He continued, "It's clear this volatility was top of mind for CFOs. Volatility was the most significant external factor influencing FX hedging decisions (24%) in Q1 2025. This tariff-driven volatility created challenges for corporates and many doubled down on hedging to protect their bottom lines. Over half (54%) extended their hedge lengths while over two-fifths (43%) increased their hedge ratio as a direct result. Both are defensive manoeuvres designed to lock in more certainty for longer. Surprisingly, geopolitics was the second smallest external factor affecting corporates' FX hedging in Q1."

Tariff-driven volatility has also had an influence beyond the FX market. Huttman explained, "Tariffs are also having an impact beyond FX, with all businesses surveyed stating their business had been impacted by tariff-driven volatility. US firms suffered the most, with 52% enduring a negative impact. Interestingly, 85% of UK corporates were positively impacted by tariff-driven volatility, likely down to the fact that Trump's policies/tariffs have caused the dollar's value to fall against the pound, making it cheaper for corporates to import from China and the US, two of the UK's largest trading partners."

He added, "Looking ahead, we can expect more hedging activity as tariffs continue to bite. In recent weeks, several of our clients pushed their hedges out to the maximum available tenor as they looked to lock in protection and ride out near-term instability. This makes sense, given that extending hedges maintains the same level of protection against currency movements but without the need to book in profit and loss generated by short-term FX swings. Those without hedging programmes will likely have suffered from recent volatility and should consider implementing a risk management programme to protect their bottom line, but they need to ensure they don't lock in rates at the wrong time and suffer more losses."

The MillTechFX Quarterly Hedging Monitor is based on a quarterly survey of 250 senior finance decision-makers at UK and US corporates, defined as those with a market capitalisation ranging from USD $50 million up to USD $1 billion, providing insight into corporate hedging activity and influential factors shaping current trends.