Eleanor Hill
May 18, 2025
Given recent currency volatility and trade tensions, companies are under pressure to review their FX hedging strategies. From stretching tenors to re-evaluating invoicing currencies and embracing automation, we explore practical steps to help treasurers stay ahead of the turbulence (or at least stay on top of their stress levels)!
With waves of tariffs emerging from the US, subsequent retaliations, retractions, negotiations, and other shifts in global policy, currency markets are experiencing a period of heightened uncertainty. For treasurers, managing FX exposure has moved right up the priority list – and is demanding attention from all quarters.
Marita Cavalcanti, CFO, Bound, acknowledges how volatile the past few months have been. “Whether it’s tariff-related, something to do with another piece of US policy, or Trump saying he doesn’t plan to fire the Fed Chair Jerome Powell, every piece of news is moving the markets – often in extreme ways,” she says.
Few would disagree. Indeed, Chris King, Co-Founder, Dukes & King, echoes this: “There isn’t a market that hasn’t oscillated wildly in the past few weeks, and with the new US leadership, the geopolitical and economic landscape is changing rapidly.”
For treasury teams, the pace of these market changes is ramping up pressure and forcing them to make sharper (and much faster) decisions. After all, recent market moves have made one thing crystal clear: timing matters. More than some would care to believe, or dare to recall.
The recent moves in FX markets have drawn a clear dividing line between those who hedged early and those who didn’t. “Some of our UK and European customers were super happy because they had hedged their dollar exposure before all of this kicked off,” reveals Cavalcanti. “And their hedges are now in the money – some by quite a substantial amount.”
The difference is especially stark for corporates with significant USD liabilities, particularly those that mainly do spot FX transactions. Faced with the same directional exposure as corporates that have hedged, the outcome is unlikely to have been as positive for those with limited hedging in place.
As the Group Treasurer of a European consumer goods company comments: “It’s exhausting, honestly. One minute we’re being hit with new tariffs, the next we’re told they’ve been reversed or renegotiated. We don’t know how to hedge for the best. But we do know that being hedged in some way is the best path forward.”
In short, the past couple of months have been a stark lesson in the benefits of robust FX risk management. Those who hedged early were not just lucky – they were prepared for the day-by-day swings that continue to define current markets.
Amid the volatility, some treasurers have turned to options. King believes that use of optionality is nothing if not “essential” in these markets. “Options are critical for managing and capping the downside risks that seem to be thrown at us by the day – or as and when Trump tweets.”
But pricing has surged alongside implied volatility, eroding the appeal of these instruments for some smaller corporates. Cavalcanti explains: “Options are extremely expensive because you would always use implied volatility to price options, and if that goes through the roof, it can be pointless to turn to options if that’s all you’re looking at buying.”
Even more complex strategies, such as collars, are proving tricky to implement effectively in the current climate. “Volatility is just so high, so the range is probably too much,” she adds.
Unsurprisingly, then, many companies continue to rely on simpler instruments. “The most used instrument among our customer base is still forwards,” notes Cavalcanti. This highlights the continued appeal of cost-effective, straightforward hedging in unpredictable markets.
And as another European treasurer shared: “We’re definitely having more strategic conversations with our banks around the types of hedging instruments we’re using. We see the benefit of using options, but it can be tough to decide what the right path is.”
As well as considering the best hedging instruments, many businesses are extending the tenor of their hedges as well. “What was once a three-month standard is now frequently stretched to six, nine, or even twelve months,” says Cavalcanti.
Rather than attempting to second-guess the market, treasurers are choosing to align hedge durations with their internal forecasts and financial plans. “Treasurers need to ensure that whatever happens in the market does not impact their margins or liquidity position. It’s all about protection,” she adds.
To support that alignment, some are layering in more rigorous scenario planning, notes King. “If EUR/USD can move 10 cents in just over a month [a typical annual range], then one should consider the base case and downside sensitivities and push the boundary of downsides.”
That kind of planning also shapes decisions around pre-hedging for known future events. “Consider pre-hedging – be it for M&A, or forthcoming refinancing needs in the next few years,” King adds. “But it doesn’t have to be an all-or-nothing decision, it can be selective. The difficulty with options is that the spectrum is endless, so I recommend starting with something – and building incrementally to avoid decision anxiety.”
With US tariffs the prime source of global FX volatility at the moment, some exporters are starting to question the default choice of invoicing in US dollars. “Currently, roughly half of international trade is still invoiced in dollars; it’s massive,” posits Cavalcanti. “In the current turmoil, many ponder which currency might replace the dollar.”
For now, the shift is slow. Companies are exploring invoicing in local currencies, but few are ready to make wholesale changes. “Everybody is looking from the sidelines for things to calm down somewhat, but if it continues to be extremely volatile, then we might see a shift away from the dollar,” suggests Cavalcanti.
The Head of Treasury at a European exporter agrees. “The dollar still rules, but we’re actively debating whether that’s sustainable. With this level of policy unpredictability, we’re running pilot projects on local currency invoicing.”
Meanwhile, some companies are contemplating structural solutions beyond currency choices, weighing the pros and cons of establishing a physical presence in the US to help manage cross-border risk. But such moves come with significant complexity.
“It’s not that easy or fast to set up an entity in the US,” Cavalcanti explains. “It’s not just about the currency or the tariffs. There’s a whole bunch of other factors to consider.”
For now, most are approaching the idea with caution, aware that the practical challenges often outweigh the theoretical benefits. With so many moving parts in play, treasurers are focusing instead on what they can control, starting with smarter tools for execution.
Technology is stepping in to support that shift. Platforms that offer real-time visibility and fast execution are helping treasury teams respond quickly to market conditions, even as structural uncertainty continues.
“What’s critical is for treasurers to have a platform for their hedges that they can access and clearly see the mark-to-market of those hedges,” emphasises Cavalcanti.
That visibility allows treasurers to make decisions with confidence and without delay. The tech resources available vary from company to company. Still, whether using a dedicated platform or spreadsheets, the goal is the same: clarity on exposure and the ability to act when it matters.
“Be clear about how exposed you are,” adds Cavalcanti. “Then look at automation as a way to do more than just reduce operational friction. It can also help with the decision-making around hedging – setting parameters at which to automatically execute hedges, for example.”
Yet even with better tech, greater visibility, and more structured planning, uncertainty remains the one variable that no treasury team can eliminate. Rates can shift overnight, policy announcements can upend assumptions, and the ongoing unpredictability is increasingly shaping market sentiment.
“Nobody knows what’s going to happen tomorrow,” says Cavalcanti. “One day there are tariffs, then suddenly there are 100-percent-plus tariffs with exemptions, and then there are trade deals being brokered, or something else entirely.”
That unpredictability is prompting treasury leaders to widen their lens, not just to manage FX exposures, but to revisit broader questions around access to capital and long-term financial resilience.
“If you are a European or non-US-based corporate, how should you think about capital needs?” asks King. “If the world is being forced into isolationist policies on trade, it may be prudent to assess the strategy of capital raising in the long term.”
With conditions changing so rapidly, the main takeaway is that static assumptions are no longer safe. A broader shift in treasury thinking is required, embracing adaptability and preparedness as core competencies. King urges: “Be proactive and be dynamic about the new regime, as it is likely to last for some time – whether you like it or not!”
May 20, 2025
May 20, 2025
May 20, 2025
May 20, 2025
May 20, 2025
Trade Treasury Payments is the trading name of Trade & Transaction Finance Media Services Ltd (company number: 16228111), incorporated in England and Wales, at 34-35 Clarges St, London W1J 7EJ. TTP is registered as a Data Controller under the ICO: ZB882947. VAT Number: 485 4500 78.
© 2025 Trade Treasury Payments. All Rights Reserved.
English
