Corporate finance teams in the UK and US cut both the amount and duration of their FX hedging in Q2, abruptly reversing Q1’s rush for protection. The average hedge ratio fell 11 percentage points to 46%. Average tenor shortened from 6.62 to 5.70 months. MillTech’s Q2 2026 Corporate Hedging Monitor puts both readings at their lowest since tracking began in Q1 2024. 

Eric Huttman, MillTech’s chief executive, commented: “These findings suggest that corporates are adopting a more tactical approach, retaining greater flexibility rather than locking in higher levels of protection for longer periods.” Even so, 88% of respondents reported losses on unhedged exposures.

The survey polled 285 senior finance decision-makers at UK and US companies with market capitalisations of US$50m to US$1bn between 24 July and 5 August.

Hedges move into a shorter window

Almost half of respondents, 49%, were hedging between 26% and 50% of their FX exposures in Q2, up from 27% three months earlier. Meanwhile, the proportion covering between 51% and 75% fell from 54% to 34%, accounting for most of the reversal from Q1’s record average.

Nearly half of respondents hedged between 26% and 50% of their exposure in Q2, up from 27% three months earlier. The 51% to 75% band moved in the opposite direction, shrinking from 54% to 34%. At the extremes, the share hedging only 1% to 25% more than doubled, while the proportion covering at least 76% fell from 14% to 5%.

Q1’s high proved short-lived. Average coverage had climbed from 46% in Q3 2025 to 49% in Q4 and 57% in Q1. Three months later it was back at 46%, leaving businesses 11 percentage points less hedged than a year earlier.

Hedging horizons shortened just as abruptly. Some 56% of companies now stop at four to six months, up from 36% in Q1. The seven-to-nine-month group contracted from 43% to 29%, while ten-to-12-month hedging fell from 10% to 3%. At 5.70 months, average tenor was below the previous trough of 5.82 months and almost a month shorter than a year earlier.

The UK recorded the sharper retreat. Their average hedge ratio fell from 58% to 45%, three percentage points below the US average, while the mean tenor declined from 6.98 to 5.35 months. Half moved into the 26% to 50% coverage range, more than double the 24% recorded in Q1. Only 27% remained in the 51% to 75% band, down from 61%.

UK companies also brought their hedging horizons markedly closer. The share hedging for one to three months rose from 5% to 19%, while four-to-six-month hedges increased from 34% to 55%. Seven-to-nine-month coverage fell from 52% to 23%, and only 4% hedged ten to 12 months ahead, down from 9% in Q1.

US companies also reduced protection, although less aggressively. Their average hedge ratio declined from 56% to 47%, and the average tenor edged down from 6.23 to 5.93 months. Some 49% covered between 26% and 50% of exposure, up from 31%, while 40% hedged between 51% and 75%, down from 48%. The proportion in the highest coverage band fell from 16% to 2%.

US hedging settled mainly in the four-to-six-month window, with a 57% majority selecting this timeframe, up from 39%. Meanwhile, 33% remained at seven-to-nine months. The proportion using one-to-three-month hedges halved from 16% to 8% and ten-to-12-month cover fell from 12% to 3%.

Policy uncertainty divides hedge plans

After pulling back both hedge ratios and tenors, companies also tried to read a policy backdrop that offered few clear signals. Rates remained unchanged on both sides of the Atlantic in June, although the inflation data and level of agreement within the two central banks differed.

At its June meeting, the Federal Reserve held its target range at 3.50% to 3.75% in a unanimous decision. Officials described US activity as expanding at a solid pace, but inflation remained elevated relative to their 2% target, partly because of energy and other supply shocks. Annual headline inflation stood at 3.5% in June, with core inflation at 2.6%.

Bank of England policymakers also kept Bank Rate at 3.75%. Two members nevertheless preferred a 25-basis-point increase to 4%, reflecting concern about volatile energy prices. UK headline inflation was 2.6% in June, 0.9 percentage points below the US rate, although services inflation continued to run ahead of goods.

Against that backdrop, central bank policy topped a crowded field of influences on corporate hedging decisions at 17%. Volatility followed at 16%, with inflation at 15% and credit availability at 14%. Geopolitics and internal time or resource constraints were each cited by 13%, leaving cost last at 11%.

Volatility and geopolitics had both gained ground during the quarter. Their shares rose from 13% to 16% and from 10% to 13%, respectively. Central bank policy moved only one percentage point higher, retaining the lead without becoming the overriding concern.

UK and US finance teams placed slightly different weight on the same broad risks. Central bank policy came first among UK respondents at 19%, followed by inflation at 17%. US finance teams placed volatility at the top, also at 19%, with central bank policy second at 16%. Geopolitics rose more sharply as a US concern, from 8% in Q1 to 13%.

Rate forecasts exposed a much wider divide. Across the full sample, 59% expected central banks to raise rates during the remainder of 2026. A slight rise was anticipated by 45% and a significant increase by 14%. Another 22% forecast no change, with the remaining 19% expecting cuts, including 4% predicting a significant reduction.

Seven in ten US respondents expected rates to rise, compared with 42% in the UK. Cuts were anticipated by one-third of UK businesses but only one in ten US companies. A further 25% of UK respondents and 20% of their US counterparts expected rates to remain unchanged.

Asked how a rate increase would affect their hedge books, 52% said they would raise their hedge ratio. Another 34% would reduce it, and 13% would make no change. US companies showed the stronger instinct to add protection, with 58% planning an increase against 43% in the UK. Even among the US group, however, one-third would cut their ratio, close to the 36% recorded in the UK.

Tenor choices were closer still. Some 45% would shorten their hedges if rates rose, 43% would extend them, and 12% would make no change. US respondents leaned towards shorter maturities, with 49% shortening and 42% extending. UK companies tilted in the opposite direction: 44% would extend, 39% would shorten, and 17% would retain their current tenor.

US finance teams therefore leaned towards higher ratios and shorter tenors. UK responses were split across both decisions. With policy rates at similar levels, the two groups were preparing for very different possibilities.

Lower losses leave residual exposure in view

Unhedged FX still generated losses for 88% of respondents, although the amounts were lower than in Q1. The average fell by 36%, from £908,577 to £580,140, while the share of companies losing at least £1m dropped from 14% to 5%.

Even after that improvement, 45% of respondents lost at least £500,000. Some 40% reported losses between £500,000 and £999,999, with another 5% losing £1m to £4.9m. A further 41% lost between £100,000 and £499,999. Only 12% escaped any impact.

UK companies recorded the sharper improvement, with average losses more than halved, from £844,444 to £417,935. Almost a quarter, 24%, reported no impact, up from 3% in Q1. The share losing between £500,000 and £999,999 fell from 54% to 27%, while the proportion losing at least £1m declined from 11% to 3%.

US companies experienced a smaller reduction in average losses, from £980,088 to £686,705. Just 5% were unaffected, while 48% lost between £500,000 and £999,999 and 7% lost at least £1m. In total, 55% of US respondents reported losses of £500,000 or more, compared with 30% in the UK.

Falling losses cannot be attributed to companies adding more protection because both ratios and tenors moved lower. MillTech’s analysis instead points to the timing of currency movements, changes in underlying exposures, and other risk-management decisions as possible contributors.

Shorter tenors keep options open, but they also bring the next decision forward. Treasury must revisit forecasts and exposures more frequently, while a lower hedge ratio leaves more of the cash flow exposed between reviews.

Q1’s rush for protection did not last. By Q2, hedges were smaller, maturities shorter and the policy signals no clearer. Lower losses gave treasurers some breathing room, but 88% still paid a price for leaving exposures open.

“Shorter hedges and lower ratios may provide greater flexibility as firms wait for clearer policy signals, but record-low levels of protection leave less room for error if rate paths diverge further or currency volatility increases,” noted Huttman.

Central banks will make their next moves later in the year. Treasury teams must decide sooner how much exposure they are prepared to carry while they wait. That flexibility already has a measurable price: average unhedged losses still stood at £580,140 in Q2.