US firms shift to long-term FX hedges as tariff risk grows
Facing renewed uncertainty in the global trade environment, US multinational corporations are lengthening the duration of their foreign exchange hedges to guard against currency volatility linked to the Trump administration’s recent tariff measures.
The shift in risk management strategy follows the April 2 announcement of sweeping new tariffs on global imports, which triggered a sharp increase in foreign exchange market volatility and accelerated the decline of the US dollar.
While a weaker dollar can benefit exporters, the broader unpredictability of trade policy has prompted firms to lock in longer-term protections for their overseas cash flows.
“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,” said Eric Huttman, chief executive of MillTechFX.
Before the tariff announcement, many corporates had relied on short-dated forward contracts to hedge currency exposure.
But as volatility surged and short-term hedge premiums rose, several firms began shifting toward two- to five-year tenors, according to Garth Appelt, head of FX and emerging markets derivatives at Mizuho Americas.
This change in approach reflects growing concerns over both trade policy and the broader macroeconomic outlook.
While a 90-day suspension of certain duties has offered temporary relief for all trading partners except China, it has done little to stabilise exchange rates.
The euro has since climbed to a three-year high against the dollar, further complicating the earnings outlook for firms with cross-border operations.
“There was tremendous focus on refining CAD and MXN hedging strategies. Corporates have shifted attention now to better position themselves for a stronger euro,” said Paula Comings, head of FX sales at U.S. Bank.
Market data shows a sharp rise in implied volatility embedded in currency options since the tariffs were announced.
According to LSEG, one-month and three-month at-the-money options contracts have risen 72% and 46%, respectively.
By contrast, the cost of two-year options rose by just 23%—prompting some firms to move hedges further out along the curve to limit short-term profit-and-loss impacts.
“Hedging farther out along the curve maintains the same level of protection against currency movements but without the need to crystallise profit and loss generated by short-term FX swings,” said Simon Lack, head of investment solutions at MillTechFX.
The current environment is also leading more corporates to consider flexible hedging tools. According to advisors, interest has grown in option-based structures, including window forwards and zero-premium strategies that provide directional protection while accommodating uncertain cash flow timing.
“We’re seeing a lot more structures trying to protect anyone that needs to purchase euros for goods and materials,” said Appelt.
Bob Stark, global head of enablement at Kyriba, said more firms are now favouring optionality over fixed commitments.
“There’s some value in pursuing an option strategy. You don’t have to decide today what tomorrow is going to look like,” Stark said. “It’s always hard to predict tomorrow. But it’s especially hard right now.”
With recession risks lingering and the dollar’s trajectory still uncertain, FX policy is becoming a more prominent part of enterprise risk planning.
The tariff-led currency swings have added complexity to everything from supplier contracts to earnings forecasts, requiring a more adaptive approach from treasury and finance teams.
For now, many firms are opting to extend their hedging horizons and diversify their instruments—buying time as they wait for a clearer policy signal.