Under the impact of tariffs, American multinational companies are increasing their long-term currency hedging to cope with exchange rate fluctuations.

U.S. multinational corporations are extending their currency hedging periods to protect their cash flow from potential exchange rate fluctuations triggered by the Trump administration's tariff policies. The adjustment of hedging periods reflects the increased uncertainty faced by these multinational corporations in the rapidly changing global trade landscape, especially against the backdrop of concerns about economic recession and a weakening dollar. Bankers and hedge advisers point out that since President Trump announced higher-than-expected global tariffs on April 2, foreign exchange market volatility has soared, causing some companies to experience losses in their hedging positions. Even companies that have relatively held up against the volatility shock are starting to extend their hedging periods. Eric Heitmann, CEO of MillTechFX, said, "In the past week, we have seen a group of clients extending their hedging periods to the maximum available, as they hope to lock in protective measures to weather short-term volatility." Gus Appel, Head of Foreign Exchange and Emerging Markets Derivatives at SMBC Americas, said that clients' hedging periods have now been adjusted to 2-5 years, with the weakening of the dollar becoming one of the biggest consequences of tariff-related market turmoil. Companies are more focused on long-term protection rather than short-term risk hedging. While a weaker dollar benefits U.S. exporters by enhancing product price competitiveness, global trade uncertainty and concerns about economic recession are prompting companies to take more measures to protect future profits. The 90-day grace period granted to all trading partners except China has not been able to stop the dollar's decline or dampen the increased volatility in the foreign exchange market. The dollar has continued to weaken against major currencies, with the euro reaching a three-year high against the dollar. Another important reason for companies extending their hedging periods is that increased volatility has pushed up the cost of short-term hedging tools. Simon Locke, Head of Investment Solutions at MillTechFX, explained, "Extending hedging periods can maintain currency volatility protection while avoiding confirming profits and losses due to short-term exchange rate fluctuations." According to data from London Stock Exchange Group, the expected volatility of one-month and three-month at-the-money option contracts has increased by 72% and 46% respectively since April 2, although there has been a slight decline recently, companies still need to pay higher costs to guard against potential short-term losses. In comparison, a two-year euro/dollar at-the-money option has only increased by 23%. Transition of option strategies The impact of Trump's tariffs has disrupted the market's widespread expectations for the future of the euro. For U.S. companies with significant sales in European markets, although a stronger euro can increase the value of overseas earnings when converted, it can also increase operating costs for other companies. Appel noted, "We have observed more companies building protection mechanisms, especially those that need to purchase euros to pay for goods and material costs." Paula Comyns, Head of Foreign Exchange Sales at Bank of America, said that the unexpected strength of the euro caught some clients off guard. "Previously, companies were mainly optimizing hedging strategies for the Canadian dollar and Mexican peso, but now they have shifted to positions aimed at the strong euro," she said. Some companies are starting to explore "window forward contracts," which combine the advantages of forward contracts with flexible execution times, especially suitable for companies in uncertain cash flow environments. Demand for "multi-term optimized exchange rate contracts" with zero upfront costs is also increasing, as these contracts allow companies to buy and sell currencies at more favorable prices on multiple maturity dates. In the past 2-4 weeks, Comyns noted that more clients are shifting from forward hedging to option strategies, to gain greater flexibility in the ongoing trade tensions. Bob Stark, Global Enablement Leader at Kyriba, pointed out, "Option strategies have unique value as companies do not need to decide on future trends now. Predicting the market is already difficult, and the current environment is even more challenging."