In response to heightened currency market volatility spurred by President Donald Trump’s surprise tariff hike, U.S. multinational corporations are extending their foreign exchange (FX) hedging strategies to longer durations. The move aims to protect future cash flows amid growing concerns about a weakening dollar, recession risks, and trade instability.
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Corporations Push Hedging Tenors to Multi-Year Horizons
The sharp rise in market gyrations following Trump’s April 2 announcement of steeper global tariffs has forced many companies to reevaluate their currency risk strategies. According to bankers and hedging advisors, several hedges were left exposed or “underwater” after the sudden market swings.
Eric Huttman, CEO of MillTechFX, said that over the past week, they had seen a group of clients push their hedges out to the maximum available tenor as they looked to lock in protection and ride out near-term instability.
Attributing the shift to dollar weakness stemming from tariff-related market turmoil, Garth Appelt, head of FX & emerging markets derivatives at Mizuho Americas, reports that clients are now extending their hedges to cover two to five years instead of focusing on short-term risks.
Dollar Weakness and Tariff Uncertainty Prompt Strategic Shifts
The dollar has declined against major currencies, with the euro reaching a three-year high. A 90-day tariff reprieve for trading partners (excluding China) has failed to stabilize the currency or ease FX volatility.
For U.S. exporters, a weaker dollar can boost competitiveness overseas, but the broader uncertainty around global trade and potential recession is prompting a more cautious, long-term approach to risk management.
Near-Term Hedging Costs Surge on Market Volatility
Another factor driving the shift toward longer-term hedges is the rising cost of near-term instruments. LSEG data indicates that since the tariff announcement, volatility premiums for one-month and three-month at-the-money options have increased sharply, by 72% and 46% respectively. In contrast, two-year options increased by just 23%, making long-dated hedges more cost-effective.
Simon Lack, head of investment solutions at MillTechFX, said that hedging farther out along the curve maintained the same level of protection against currency movements but without the need to crystallize profit and loss generated by short-term FX swings.
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Pivot to Options and Flexible Hedging Instruments
The unpredictability of the current trade environment is also driving a strategic pivot from traditional forwards to more flexible option-based strategies. These include window forwards—contracts that offer the flexibility to execute within a range of dates—and zero-premium option structures that provide rate advantages without upfront costs.
“There’s some value in pursuing an option strategy. You don’t have to decide today what tomorrow is going to look like,” said Bob Stark, global head of enablement at Kyriba.
Paula Comings, head of FX sales at U.S. Bank, noted that recent euro strength caught some firms off guard. “The focus had been on CAD and MXN hedging, but now companies are rapidly adjusting to manage euro exposure,” she said.
The Shifting Landscape of Corporate FX Management
As trade tensions escalate and the dollar weakens, multinational corporations are being forced to adapt quickly. Longer hedge durations, increased use of FX options, and refined exposure management are becoming essential tools in an era marked by geopolitical shocks and economic unpredictability.
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