Unhedged FX losses push corporates back to hedging

UK companies lost an average of £6.71 million in 2025 from unhedged foreign exchange exposure, while US corporates lost $9.85 million, according to new MillTech survey data that points to a shift back towards currency protection this year.

The findings are from MillTech's Q4 2025 Corporate Hedging Monitor, based on a survey of 250 senior finance decision-makers at UK and US corporates. Respondents came from companies with market capitalisations of $50 million to $1 billion, including Chief Financial Officers, Treasurers, Accountants and Financial Managers.

FX-related losses were widespread among mid-market firms. Four in five said they recorded losses from unhedged currency risk during 2025, and nearly one in five described them as significant.

Those losses appear to have sharpened attention on hedging. Activity rose in the final quarter of 2025 from the previous quarter, with the average hedge ratio increasing to 49% from 46% in Q3, though it remained below earlier 2025 levels.

Hedge duration also extended. Average hedge tenors increased to 6.3 months from 5.8 months, bringing them back in line with the first half of 2025.

In the UK, average hedge lengths edged above Q4 2024 levels, suggesting some firms were more willing to secure cover over longer periods to improve certainty over cash flows and costs.

Drivers and pressure

The survey asked finance leaders which external factors most shaped their hedging decisions. Central bank policy and inflation rates ranked joint first, with 17% selecting each. MillTech said this was the first time inflation had shared the top spot.

The monitor also linked hedging intentions to political and trade uncertainty. Nearly two-thirds of respondents said they planned to increase hedge ratios during 2026, and a similar share expected to extend hedge tenors.

Overall, 64% planned to raise coverage and 59% expected to hedge further out. UK firms were more inclined than US firms to increase both the amount of hedging and the time horizon.

A smaller minority signalled the opposite, around one in 10 planned to reduce hedge ratios, while 9% expected to shorten hedge lengths.

Risk management

Corporations with cross-border revenue, costs, assets or liabilities commonly use currency hedging to reduce exposure to adverse exchange-rate moves that can affect margins, cash flow and reported earnings. Typical approaches include forwards and options, as well as natural hedging by matching costs and revenues in the same currency.

The results suggest that many companies still have a substantial portion of their exposure unhedged in 2025. With an average hedge ratio below 50%, a sizeable share of currency risk remained open to market swings, which the monitor linked to the reported losses.

MillTech described the Q4 changes as a defensive shift, while noting that corporates were weighing the trade-offs between hedging costs and flexibility. In volatile markets, longer tenors can provide more certainty but may limit a firm's ability to benefit from favourable FX moves or respond to changing forecasts.

Eric Huttman, CEO of MillTech, described the final quarter as a turning point in corporate behaviour.

"Q4 2025 marked a clear shift back towards defensive FX management. While hedge ratios and tenors increased, they have not yet returned to early-2025 levels, suggesting firms continue to balance protection against cost and flexibility. However, with most corporates experiencing losses from unhedged exposure, 2026 is likely to see further increases in coverage as tariff and policy-driven uncertainty persists and major currencies recorded their largest swings in nearly a year," said Eric Huttman, CEO, MillTech.

The next quarterly reading will offer an early indication of whether firms follow through on plans to increase coverage and hedge further out as tariff uncertainty and macroeconomic policy changes continue to influence currency markets.