FX face-off: How UK and US firms tackle currency risk

The relationship between the United Kingdom and the United States is rooted in a long-standing economic partnership. Both regions, as global financial powerhouses, play significant roles in international trade and investment. Their interconnected economies mean that the FX markets are critical to the efficient functioning of cross-border business activities.

Analysis of our UK and US Corporate CFO FX Reports 2024, combined with insights from our Q4 hedging monitor, highlights that while both regions face common macroeconomic challenges, they encounter unique obstacles and have differing strategic priorities when managing FX operations. Tom Hoyle, Business Development Director here at MillTechFX, provides his insights into how corporates are adapting to these challenges and reshaping their FX strategies to remain competitive.

In this blog:

• FX hedge ratios and durations
• Shift towards FX options
• Key external influences
• Drive for automated processes

 

FX hedge ratios and durations

In Q4, UK corporates raised their average hedge ratio significantly, with 57% of their FX exposure now hedged. This is a notable increase of 9% from Q3, suggesting a stronger emphasis on mitigating currency risk amid economic uncertainty including pound fluctuations. Meanwhile, US firms took a steadier approach to hedging in Q4, with an average hedge ratio of 45%.

Firms in both the UK and the US are expressing plans to extend the duration of their hedges, signalling a proactive approach to managing long-term currency risk. However, their strategies diverge when it comes to hedge ratios.

In the US, 39% of corporates intend to reduce their hedge ratios, whilst only 17% of UK firms plan to scale back, with most favouring an increase. This disparity suggests that UK corporates are under greater pressure to manage increased currency volatility and brace for potential economic changes. In contrast, US firms appear more cautious, likely influenced by expectations of a strong dollar. In fact last year, 90% of US corporates reported a positive impact on their bottom lines from the stronger dollar and 92% anticipated that the dollar will continue to strengthen into 2025.

“UK corporates increasing their hedge ratios indicates a desire to add a higher level of certainty with their average hedge rates. In doing so, businesses are more protected against the short-term volatility we have seen across the end of 2024 and into 2025. While large FTSE businesses generally have a global footprint, which helps to limit exposure to volatility, on the whole the UK is a net importer of goods, as such, protecting to the downside is a necessity for most.” Tom Hoyle, Business Development Director

 

Shift towards FX options

FX options are rapidly gaining traction as a preferred hedging strategy, with 64% of UK firms last year reporting more frequent use. This surge has been driven by recent low implied volatility, which has made option pricing more affordable and attractive. For businesses navigating uncertain currency markets, FX options offer a flexible way to manage risk without locking in rates like FX forwards.

Looking ahead, this trend shows no signs of slowing down. In fact, 30% of UK and 35% of US firms plan to further increase their use of FX options in 2025, signalling a growing reliance on these instruments to handle currency fluctuations. This shift highlights the increasing importance of dynamic risk-management tools in protecting profit margins.

 

Key external influences

Credit availability was the leading external factor influencing FX hedging decisions during Q4, in both the US (22%) and the UK (19%). Credit-related issues remain a major challenge, with 30% of UK businesses citing onboarding liquidity providers as their biggest FX challenge last year. Similarly, 31% of US firms pointed to securing credit lines as their top FX challenge, followed closely by obtaining competitive quotes (29%).

The struggles with FX don’t end there, with 3 in 4 UK and US businesses reporting losses from unhedged FX risk in 2024. The UK saw a higher proportion of significant losses at 27%, compared to the US’s 19%, indicating that while losses were widespread in both regions, they were more severe for UK firms.

“We saw signals of a credit tightening cycle during the course of 2024 and it looks set to remain into 2025. The challenge for businesses is – if required – how quickly they can onboard / access new liquidity providers on terms that aren’t prohibitive e.g. short tenors / high costs. Whether these credit headwinds force businesses to change their approach throughout the course of 2025 remains to be seen, but it is something we will be monitoring closely”. Tom Hoyle, Business Development Director

 

Drive for automated processes

The push to automate FX Workflow is gaining momentum, with 41% of UK corporates and % of American businesses naming automation of manual processes their top priority. Despite this focus, many corporates in both regions remain heavily reliant on outdated methods for instructing FX, with phone transactions still dominating—in the UK and in the US. This disparity highlights a disconnect between aspirations and existing practices, pointing to the challenges of modernising deeply ingrained workflows.

Interestingly, when asked about leveraging AI for FX purposes, every respondent indicated interest. FX risk management emerged as the leading application in both countries, reflecting the critical need for smarter, faster tools to navigate volatile markets.

Looking forward to the next five years, technology is set to revolutionise FX operations, with blockchain and big data analytics leading the charge. In the UK, 23% of industry professionals see blockchain as the most impactful, which can assist to streamline transactions, increase FX transparency, and reduce settlement times. Meanwhile, in the US, point to big data and analytics as the key driver of change, which can be used to deliver insights, enhance FX risk management, and refine trading strategies.

While corporates are still early in their transformation journeys, their enthusiasm for innovation is clear, and emerging technology is poised to play a key role in reshaping FX operations.

 

 

This blog examines the data and results of surveys by Censuswide on MillTechFX’s behalf conducted in June 2024, September 2024 and January 2025 based on surveys of 250 CFO’s, treasurers and senior finance decision-makers in mid-sized corporates (described as those who have a market cap of $50mil up to $1 billion and £40m to £791m (UK 2024 report).

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