Corporate treasurers are moving back toward currency protection after a year marked by sharp swings in major currencies and mounting losses from unhedged exposures. New survey data suggests that while firms had trimmed hedging through much of 2025, the financial impact of that decision is now prompting a more defensive stance for the year ahead.

According to MillTech’s latest Corporate Hedging Monitor, four in five corporates reported losses from unhedged foreign exchange exposure over the past year. Average losses reached £6.71m for UK firms and $9.85m for US companies, with some reporting figures exceeding $25m. The scale of these losses appears to be a key factor behind a renewed focus on hedging as 2026 begins.

The findings indicate that the pendulum is swinging back toward protection. Average hedge ratios have risen modestly from the lows recorded in the third quarter of 2025, while hedge tenors have lengthened as companies seek greater cash flow certainty amid ongoing policy and trade uncertainty. Although coverage remains below early-2025 levels, the direction of travel is clear.

From retreat to recalibration

The shift marks a reversal from the third quarter of 2025, when corporates had scaled back hedging activity and shortened hedge tenors to their lowest levels since the survey began. At that point, firms were adopting a wait-and-see approach as expectations for interest rates diverged and fiscal policy concerns weighed on currency markets.

In Q3, the average hedge ratio had fallen sharply to 46% from 57% in the previous quarter, while hedge lengths slipped to 5.8 months. Treasurers appeared to be balancing the cost of hedging against uncertainty around the path of central bank policy and trade developments. Many were reluctant to lock in long-term protection while the direction of interest rates and currencies remained unclear.

By the end of the year, however, market movements and policy developments began to alter that calculation. The US dollar continued to weaken following Federal Reserve rate cuts, while sterling experienced heightened volatility around fiscal events and shifting growth expectations. These moves, combined with tariff-related uncertainty and uneven economic data, left many firms exposed to currency swings.

The result was a period in which reduced coverage translated into tangible financial losses. The survey’s finding that 80% of firms experienced losses from unhedged exposure underscores the cost of remaining under-hedged during volatile market conditions. For treasury teams, the experience appears to have reinforced the value of maintaining a baseline level of protection even when markets are difficult to read.

Coverage rises but remains cautious

Against that backdrop, hedging activity began to recover in the final quarter of 2025. The average hedge ratio increased to 49%, while the average hedge tenor lengthened to just over six months. In the UK, hedge lengths marginally exceeded levels seen a year earlier, suggesting a renewed willingness to lock in rates for longer periods.

Even so, coverage has not returned to earlier-2025 levels. Firms continue to weigh the cost of hedging against the need for flexibility in an environment where interest rate paths and trade policies remain uncertain. The modest increase in ratios and tenors points to a cautious recalibration rather than a wholesale return to aggressive hedging.

External factors shaping hedging decisions have also shifted. Central bank policy and inflation are now cited as the most influential drivers, each referenced by 17% of respondents. This marks the first time inflation has matched policy as the top factor, reflecting persistent price pressures and their impact on currency markets.

Regional differences remain evident. UK corporates place greater emphasis on volatility and inflation, while US firms continue to focus on central bank policy and credit availability. The decline in credit availability as a top concern suggests that financing conditions may have stabilised somewhat compared with earlier in 2025, allowing treasurers to refocus on market risk.

A defensive outlook for the year ahead

Looking ahead, most corporates plan to increase protection further. Nearly two-thirds of respondents say they intend to raise hedge ratios during 2026, and a similar proportion expect to extend hedge tenors. UK firms appear slightly more inclined to increase coverage than their US counterparts, although the overall direction is consistent across both markets.

Tariff-related uncertainty is a key driver of this shift. Trade policy developments and the potential for renewed volatility in major currencies are prompting companies to prioritise protection against adverse moves. At the same time, central bank policy remains a dominant influence, with expectations for rate changes continuing to shape currency dynamics.

For treasury teams, the experience of 2025 offers a reminder of the financial impact of leaving exposures unprotected during periods of market stress. While hedging strategies vary widely by sector and risk tolerance, the survey suggests that many firms are now seeking to rebuild coverage to mitigate the risk of further losses.

The broader implication is that hedging decisions are becoming more closely tied to a combination of macroeconomic and geopolitical factors. Inflation, policy divergence and trade developments are all contributing to a more complex risk environment, requiring treasurers to balance protection, cost and flexibility.

“Q4 2025 marked a clear shift back towards defensive FX management,” says Eric Huttman, CEO of MillTech. “While hedge ratios and tenors increased, they have not yet returned to early-2025 levels, suggesting firms continue to balance protection against cost and flexibility. However, with most corporates experiencing losses from unhedged exposure, 2026 is likely to see further increases in coverage as tariff and policy-driven uncertainty persists and major currencies recorded their largest swings in nearly a year.”

The picture that emerges is one of adjustment rather than abrupt change. Corporates are rebuilding protection after a period of reduced coverage, but they are doing so gradually, mindful of both the cost of hedging and the unpredictability of the global economic environment. For treasury teams navigating 2026, the lesson appears to be clear: maintaining a measured level of currency protection may prove less costly than waiting for clarity that never fully arrives.