UK firms ramp up FX hedging as sterling volatility bites

UK corporates have expanded their use of foreign exchange hedging as volatility in sterling and global trade tensions weigh on earnings, according to new research from FX and cash management provider MillTech.

The study reports that 78% of UK firms now hedge their FX risk. This is up from 76% last year and 70% in 2023. Nearly half of respondents, 48%, said they had suffered losses because of swings in the pound over the past year.

Finance leaders are lengthening and deepening their hedging programmes. More than half of corporates, 55%, said they are extending hedge lengths. A further 37% said they are increasing hedge ratios. The average hedge ratio has risen to 53%, compared with 45% in 2024.

The report is based on a survey of more than 250 senior finance decision-makers at UK corporates. It examines how firms are adjusting their FX strategies amid elevated volatility, higher costs, and the growing use of technology in risk management.

Sterling swings

Sterling saw sharp moves during 2025. The currency reached a four-year high against the dollar in early summer, then fell back to its weakest monthly performance in three years. Respondents linked the moves to changing global trade conditions and geopolitical uncertainty.

Hedging rates have now risen for a third consecutive year. Firms that have not yet hedged are reassessing their stance. Among non-hedgers, 68% said they are considering introducing hedging in response to current market conditions.

Hedge duration has also shifted. Average hedge length stands at 5.52 months. This is broadly unchanged from 5.55 months in 2024. It remains higher than the 4.04 months reported in 2023 and 4.95 months in 2022.

Eric Huttman, Chief Executive of MillTech, said finance leaders have reassessed their approach to currency risk over the past year.

"2025 has been a pivotal year for UK businesses as they navigate sharp swings in sterling and shifting global trade conditions. For many, there has been a realisation that staying partially or entirely unhedged carries financial risks that can no longer be ignored. Hedging has moved from a 'nice to have' to a fundamental part of managing currency exposure, and we're seeing firms take a more disciplined and strategic approach as a result," said Huttman.

Rising costs

The push into hedging is taking place against a backdrop of higher costs. The average cost of hedging rose by 66% in 2025. Almost one in five firms, 17%, said their hedging costs have more than doubled. A large majority, 92%, reported some increase in cost.

Access to credit is also tightening. Over two-thirds of respondents, 70%, said their credit provider had increased interest rates or fees during the past year. Almost half, 47%, said lenders had tightened criteria for new or existing facilities.

Despite the pressures, satisfaction with FX providers is relatively high. Just over half of firms, 53%, said they are very satisfied with the FX services they receive from their main bank or FX provider. The most sought-after future solution is a digital, multi-bank platform with more automation. This featured as a priority for 26% of respondents.

Manual methods persist

The research indicates that many corporates still rely on manual tools for FX trading. Email is now the second most common method of FX execution, used by 42% of respondents. This marks a ten-percentage-point increase from 2024. Phone dealing is used by 40%, up six percentage points from last year.

Firms report that a lack of internal specialist skills remains a constraint. Limited in-house expertise is cited as the largest operational challenge in FX by 29% of respondents. Across the sample, 25% report difficulties securing credit lines. A further 24% highlight the complexity of calculating FX costs.

Trade tensions remain a concern. Almost half of UK firms, 48%, said they had experienced a negative impact from trade tensions and tariffs. This is below the 69% reported in North America. 97% of UK corporates have adjusted sourcing or manufacturing strategies that affect their FX profile. A large majority, 84%, are optimistic about the impact of Trump-era tariffs over the next year.

Automation and AI

Corporate treasuries and finance teams are placing more focus on automation. Respondents rank automation as their second-highest priority. Key processes under review include reporting, targeted by 36% of firms. Trade execution is a focus for 35%. End-to-end FX workflow automation is a priority for 33%.

Artificial intelligence is taking a central role in those efforts. AI-based tools for process automation are planned or in use at 42% of respondents. The same share, 42%, cited AI for risk identification. AI for risk management was cited by 41%.

Many firms are also using external providers to bridge skills gaps. Outsourcing remains an important element of FX and treasury operations. The main reasons are access to specialist expertise (34%) and efficiency and automation (34%). Scalability and flexibility in operations rank next at 30%.

Huttman said many firms intend to change their operational models in the coming year. "Yet many organisations are still reliant on manual processes at a time when they need to operate with more speed and certainty. Looking ahead to 2026, we expect a significant shift towards smarter, more automated FX operations. The firms that embrace these tools will be better placed to act quickly, improve accuracy and protect themselves in an increasingly unpredictable market," said Huttman.