Geopolitical shocks transmitted to the financial side of enterprises. The foreign exchange hedging ratio of UK and US companies reached a record high.

A industry survey shows that due to disruptions caused by the Iran war in the global market, companies in the US and UK increased their currency hedging efforts in the last quarter. According to data from the currency hedging and cash management platform MillTech, in the first three months of this year, corporate CFOs on average used financial tools to hedge 57% of their foreign exchange risk exposure, higher than the 49% in the fourth quarter. This is the highest level since the company began surveying businesses in the first quarter of 2024. CEO of MillTech, Eric Huttman, stated that international events including the US arresting Venezuelan President Nicols Maduro in January and the US-Iran conflict leading to a surge in energy prices have driven the rebound in hedging transactions. Huttman wrote in the report accompanying the data that this growth reflects companies taking a more proactive approach to foreign exchange risk management in response to increasingly volatile market conditions. Due to the safe-haven sentiment triggered by the Iran war, the US dollar strengthened, pushing the dollar up by about 1% in the first quarter, and the Iran war also dampened expectations of looser monetary policy by the Fed. For US multinational corporations, a strong dollar weakens the value of their overseas earnings, reduces the competitiveness of their products overseas, and lowers the prices of imported components. For UK companies, a stronger US dollar against the British pound would have the opposite effect, raising the costs of imports from the US. The JPMorgan Global FX Volatility Index soared to its highest level since mid-2025 in late March, followed by some decline in the following weeks, as traders closely watched developments in the ceasefire between the US and Iran and the outlook for Fed monetary policy. MillTech surveyed 250 US and UK companies with market values ranging from $50 million to $1 billion. The biggest currency-related impacts mentioned by them are the increased import costs due to exchange rate fluctuations, as well as increased volatility in profits and cash flows. Despite geopolitical shocks and market turmoil increasing the need for currency hedging, these companies stated that the availability of credit remains the most important external factor affecting hedging decisions. These hedging transactions are typically done through forward contracts, swap contracts, and options, which may use up bank credit lines and trigger margin requirements. As companies usually transact with banks that provide revolving credit, tightening loan conditions would increase hedging costs. "In 2026, banks will continue to tighten loan standards, making it harder for businesses to obtain loans," Huttman cited a survey of senior credit officers by the Fed in April.