U.S., UK companies cut FX hedging to series low, MillTech survey shows

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US, UK FX hedging cuts low

Highlights

MillTech survey finds average FX hedge ratio across U.S. and UK companies drops to 46% from 57%, and average hedge length falls to 5.7 months from 6.62 months—both series lows since Q1 2024.
Share of firms hedging 51%-75% of exposures falls sharply to 34% from 54%, with nearly half now hedging more tactically between 26% and 50%.
Monetary policy is the top factor for UK firms and volatility for U.S. firms, as declining realised currency volatility in Q2 prompts companies to accept less FX cover despite ongoing macroeconomic uncertainty.

Second-quarter hedging levels and survey findings

As reported by Reuters, citing MillTech, the average hedge ratio across surveyed companies falls to 46% from 57%, while average hedge lengths decline to 5.7 months from 6.62 months, both marking new lows for the survey series that starts in the first quarter of 2024.

Nearly half of firms now hedge between 26% and 50% of their exposures. The share hedging between 51% and 75% drops to 34% from 54%, indicating that companies are taking a more tactical approach and preserving flexibility instead of locking in higher levels of protection for longer periods.

MillTech surveys 285 senior finance decision-makers at U.S. and UK corporates between July 24 and August 5. The survey says companies step back in the second quarter from the more defensive stance seen at the start of the year.

Policy uncertainty and market impact

For UK companies, monetary policy is the biggest factor shaping FX hedging decisions, while for U.S. companies, volatility is the main driver. MillTech says shorter hedges and lower hedge ratios may give firms more room to wait for clearer policy signals, but weaker protection leaves less margin for error if rate paths diverge further or currency volatility rises.

Realised currency volatility, a measure of how much currencies actually move, eases consistently in the second quarter after spiking in the first quarter alongside the start of the war in the Middle East, according to LSEG data. The shift suggests some companies are responding to calmer market moves by accepting lower cover even as macroeconomic uncertainty remains elevated.

Our earlier coverage of EU/UK middle-market direct lending showed how the region’s expanding private credit market is stacking up against the more established U.S. cohort. We noted that assessed EU/UK borrowers displayed stronger current credit quality and lower payment default risk than U.S. borrowers, even as loan spreads remained wider due to factors such as lower competitive pressure and added multi-jurisdictional risk premiums.

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