Major UK & US firms cut hedging amid policy uncertainty

Corporate foreign exchange hedging activity has declined among major companies in the US and UK, according to new research. Senior finance decision-makers reported the lowest average hedge ratios and durations since the data series began. However, most firms plan to boost hedging significantly if central banks raise interest rates in 2026.

Hedging reduction

The average hedge ratio among surveyed corporates dropped to 46% in the third quarter, a marked decline from 57% in the previous quarter. At the same time, average hedge length fell to just 5.8 months compared with 6.5 months in the prior period. The latest data reflect increased caution as economic and policy uncertainties persist.

The survey, which included 250 senior finance professionals across the UK and US, found that companies have cut back hedging in response to unclear monetary policy signals and mixed performance of both the US dollar and pound sterling. Persistent fiscal concerns and uncertainty over future central bank moves contributed to the shift in activity.

Policy drivers

Central bank policy remains the dominant external factor influencing hedging strategies, cited by 20% of participants. Credit availability was the next most significant consideration, reported by 19%. These priorities remain broadly consistent with previous findings, highlighting a continued focus on macroeconomic conditions and liquidity access.

Expectations of policy tightening have increased noticeably. Among UK firms, 79% anticipate the Bank of England will raise rates, while 64% of US respondents expect the Federal Reserve to do the same. Firms are adjusting their risk management based on these evolving forecasts.

Plans for 2026

A substantial majority of corporates indicated that a shift in monetary policy could prompt a sharp increase in hedging activity. In the UK, 93% of companies say they would raise their hedge ratios if the Bank of England increases rates. In the US, 96% of companies expressed similar intentions in response to a possible move by the Federal Reserve.

Looking ahead to 2026, firms expect to respond to changes in trade policy as well as monetary moves. Some 92% of respondents plan to extend both the duration and coverage of their hedges if trade policy shifts materialise alongside potential rate increases.

Corporate caution

"The overall picture from Q3 is one of measured caution. Corporates didn't abandon hedging, but they shortened durations and reduced their cover as they awaited clearer policy signals. As the year heads into its final quarter, central bank guidance and tariff-related developments are likely to remain the dominant forces influencing hedging strategies," said Tom Hoyle, Head of Corporate Solutions, MillTech.