American multinational firms are adjusting their risk management strategies, opting to extend currency hedges over longer durations as they brace for potential turbulence stemming from Trump administration trade policies.
The shift reflects the growing uncertainty in international markets, especially amid concerns over a slowing economy and a weakening U.S. dollar. The latest wave of hedging activity followed President Trump’s April 2 announcement of steeper-than-anticipated tariffs, which caught many off guard.
Adjusting for the New Normal
The resulting volatility in currency markets has forced companies to re-evaluate their strategies. According to bankers and FX advisors, some existing hedge positions were caught offside by the market’s reaction.
Eric Huttman, CEO of MillTechFX, noted:
“Over the past week, we’ve seen a group of clients push their hedges out to the maximum available tenor as they look to lock in protection and ride out near-term instability.”
This means that rather than protecting against short-term moves, firms are increasingly looking two to five years ahead.
Garth Appelt, head of FX and emerging markets derivatives at Mizuho Americas, explained the shift:
“Clients are now hedging two to five years out as dollar weakness has become one of the biggest fallouts of the tariff-related market turmoil.”
Weak Dollar, Rising Hedging Costs
A softer dollar can benefit U.S. exporters by making their products more competitive overseas. However, the broader trade environment remains unpredictable. Even a 90-day delay on some tariffs for countries other than China hasn’t stabilized the dollar or curbed the FX market’s swings.
As volatility climbs, so too does the cost of protection. Shorter-term hedging tools have grown more expensive, prompting companies to seek cost-effective long-term alternatives.
Simon Lack of MillTechFX added:
“Hedging farther out along the curve maintains the same level of protection against currency movements but without the need to crystallize profit and loss generated by short-term FX swings.”
Options Gain Traction
The jump in volatility expectations—up 72% for one-month and 46% for three-month options—has pushed companies to diversify their hedging instruments. In contrast, two-year EUR/USD options have risen just 23%, making them more appealing.
This has led to a growing interest in flexible options strategies. Some firms are opting for window forwards or other structures that provide a buffer against timing uncertainty, allowing them to execute transactions within a broader timeframe.
Appelt observed a shift in currency focus as well:
“We’re seeing a lot more structures trying to protect anyone that needs to purchase euros for goods and materials.”
Paula Comings from U.S. Bank noted:
“There was tremendous focus on refining CAD and MXN hedging strategies. Corporates have shifted attention now to better position themselves for a stronger euro.”
Seeking Flexibility in Uncertain Times
With many firms unsure of their future cash flows, options strategies are gaining popularity for the flexibility they offer. These tools allow businesses to navigate market swings without committing too early to a specific outcome.
Bob Stark from Kyriba summed it up:
“There’s some value in pursuing an option strategy. You don’t have to decide today what tomorrow is going to look like.”
In today’s climate, that adaptability might be more valuable than ever.