A report by MillTechFX reveals that a majority of UK and US firms have made significant changes to their foreign exchange (FX) hedging strategies following Donald Trump’s re-election as U.S. president. The adjustments come in response to heightened currency market volatility and a sharp rise in the dollar’s value.
The 2024 U.S. presidential election has caused a widespread reassessment of corporate risk management approaches. Over 90% of businesses in the UK and US have revamped their FX programs, with many increasing hedge ratios, extending the duration of hedges, and locking in rates for longer periods. This reflects an effort to mitigate risks tied to unpredictable market conditions and economic uncertainties.
Dollar Surge Sparks Action
The dollar saw a dramatic surge after the election, marking its largest single-day gain in eight years. Historically, shifts in U.S. leadership have had a significant impact on currency markets, and this election was no exception. Trump’s re-election triggered a sharp rise in the dollar against major currencies such as the euro, yen, and pound, forcing corporate risk managers to act swiftly.
The immediate post-election volatility has led to a notable divergence in sentiment between UK and US firms. UK companies appear more optimistic about the economic outlook under Trump, largely due to their focus on domestic markets. In contrast, U.S. firms are adopting a more cautious approach, preparing for extended market instability and potential trade disruptions.
Inflation and Economic Concerns
Inflation remains a key factor influencing hedging decisions. In the UK, inflation rose to 2.3% in October 2024, driven by rising energy costs and new government policies. This has prompted many UK firms to reassess their strategies to protect against further price increases.
On the other hand, U.S. businesses are grappling with tighter credit conditions and a volatile economic landscape. Many have opted for longer hedge durations to manage the prolonged uncertainty expected in the months ahead.
Navigating Complex Challenges
Despite concerns over tariffs and trade tensions, UK firms remain relatively confident that their domestic focus will shield them from global disruptions. Meanwhile, U.S. companies are bracing for challenges tied to geopolitical risks, inflationary pressures, and tightening financial conditions.
As 2024 draws to a close, finance teams across both regions are prioritizing strategies to manage these risks while maintaining operational simplicity. The focus is now on navigating a complex economic environment shaped by political shifts, inflation, and market volatility.
