US and UK Companies Cut FX Hedging to Record Lows in 2024: MillTech Survey
Key Findings from MillTech’s 2024 Corporate FX Hedging Survey
LONDON, Sept 18 (Reuters) - Companies in the United States and Britain cut their hedges against big swings in the currency markets to the lowest in at least two years in the second quarter on the back of growing uncertainty about interest rates and inflation, according to a survey by FX and cash management solutions firm MillTech.
Survey Overview
Here are the main findings of MillTech's quarterly corporate hedging survey released on Friday:
Decline in Hedge Ratios and Lengths
• The average hedge ratio fell from 57% to 46%, the lowest level since tracking began in the first quarter of 2024, when the survey began. Average hedge lengths also declined, falling from 6.62 months to 5.7 months and reaching a new series low.
Shifts in Corporate Hedging Strategies
• Almost half of firms are now hedging between 26% and 50% of their exposures, while the proportion hedging between 51% and 75% fell from 54% to 34%, which suggests companies are adopting a more tactical approach, retaining greater flexibility rather than locking in higher levels of protection for longer periods, MillTech said.
Currency Volatility Trends
• Having spiked in the first quarter of the year with the start of the war in the Middle East, realised currency volatility - how much currencies actually moved - fell consistently in the second quarter, according to LSEG data.
Corporate Attitudes and Risk Management
• "Overall, in Q2, corporates stepped back from the more defensive approach seen at the start of the year. Shorter hedges and lower ratios may provide greater flexibility as firms wait for clearer policy signals, but record-low levels of protection leave less room for error if rate paths diverge further or currency volatility increases," the survey said.
Key Influences on FX Hedging Decisions
• The survey showed that monetary policy was the single biggest factor that influenced FX hedging decisions for companies in the UK, while for US companies, it was volatility.
Survey Methodology
• MillTech surveyed 285 senior finance decision-makers at UK and US corporates between July 24 and August 5.
(Reporting by Amanda Cooper; Editing by Toby Chopra)
