Polling of 250 CFOs by MillTech, shows that 54% have increased their hedge lengths while 43% have upped their hedge ratios.
Drilling down, there is a definite split between UK and US strategies. UK hedge lengths are now the longest they have been in a year, suggesting an attempt to lock in rates for longer, likely because the dollar is now weaker against the pound.
In the US, hedge lengths, on average 5.84 months, and ratios (39%), are the lowest they have been since tracking began last year. MillTech says this could indicate a bid for “flexibility”.
... when you take a closer look, there is notable geographical divergence
CEO Eric Huttman says that across the board changes may seem minor. “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.”
US tariff policy has been a major driver of decision-making for companies on either side of the Atlantic.
On entering office at the beginning of the year, US president Donald Trump ordered a review of tariffs and trade. In April, he released a “comprehensive tariff policy” that set new tariff levels with 60 countries, including some the US did not appear to do business with.
Later in the same month new tariffs were introduced on cars and, in May, on steel.
The US had planned a 50% baseline tariff on EU goods if no agreement was reached before 9 July.
Meanwhile, steel imports to the US face a 50% tariff, except supplies coming from the UK that will likely continue at the 25% rate. UK and US leaders have “pledged” to work towards a 0% tariff.
US firms suffered the most, with 52% enduring a negative impact
However, given Donald Trump’s unpredictability, tariffs may change at any time. The president issued new threats about steel from the UK in mid-June because a quantity is produced by an Indian-owned plant in Port Talbot.
Huttman says the volatility has been “top of mind” for CFOs, topping the list of risks affecting FX decisions in Q1 of this year.
Tariffs have had an impact that goes further than foreign exchange, with many businesses saying they have been hit by tariff-driven volatility. “US firms suffered the most, with 52% enduring a negative impact,” says Huttman.
“Interestingly, 85% of UK corporates were positively impacted by tariff-driven volatility, likely down to the fact that Trump’ 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.”
Concerns about tariffs will continue. “In recent weeks, several of our clients pushed their hedges out to maximum available tenor as they look to lock in protection and ride out near-term instability,” Huttman adds.
Gavin Hinks is a business and finance journalist