U.S. companies with overseas operations are leveraging cross-currency swaps to capitalize on lower euro rates, reducing debt funding costs amid high U.S. interest rates, according to corporate advisers.
Increasing Demand for Cross-Currency Swaps
As interest rate differentials between the U.S. and other major economies widen, cross-currency swaps—where companies exchange loan principal and interest payments in different currencies—have gained traction.
“We have seen activity in both new cross-currency swap transactions and restructurings of existing hedges,” said John Wahr of U.S. Bank. January’s EUR/USD cross-currency swaps rose 7% to $266 billion compared to the previous year, according to Clarus data.
Managing Currency Risk
Companies use these swaps to hedge against exchange rate volatility, which has been exacerbated by Trump’s trade policies. Since taking office, he has implemented tariffs on steel, aluminum, and other imports, fueling inflation concerns.
“The uncertainty has provided our clients with an opportunity to hedge against macro uncertainty,” said Eric Merlis of Citizens Bank. Converting dollar interest payments to euro payments can save nearly 200 basis points in interest costs, according to Jackie Bowie of Chatham Financial.
However, corporate treasurers remain cautious, as currency fluctuations could affect these trades’ profitability. If the foreign currency strengthens, interest expense savings could diminish, warned Marc Fratepietro of Deutsche Bank.
With the euro hitting a two-year low against the dollar in early 2025, some companies see an attractive opportunity to hedge, while others remain wary of foreign exchange risks.