Sterling, meanwhile, delivered a mixed performance. While the pound found some support from global risk appetite and dollar softness, it weakened against the euro, with EUR/GBP rising toward 0.88 as UK growth concerns and fiscal uncertainty persisted.
The Bank for International Settlements’ Triennial FX Survey confirmed that global FX turnover reached a new all-time peak, with average daily volumes surpassing $9.6 trillion, underscoring how volatility and policy uncertainty have driven trading across currencies.
Against this backdrop, after a sharp uptick in hedging activity through the first half of the year, corporates eased off in Q3. The average hedge ratio fell to 46%, the lowest level since we launched the first hedging monitor back in Q1 2024, and a notable drop from the record high hedge ratio of 57% recorded in the previous quarter, Q2 2025.
Hedge lengths also shortened markedly, with the average tenor falling to 5.8 months; the shortest since monitoring began. This decline suggests many firms are taking a more cautious, wait-and-see approach amid shifting rate expectations and a fluid policy environment.
When asked about the biggest external factors shaping their hedging decisions, central bank policy (20%) and credit availability (19%) again topped the list, mirroring sentiment from Q2. The persistence of these concerns underlines how monetary conditions and access to liquidity continue to dominate corporate risk management agendas.
Regional patterns diverged slightly. In the UK, corporates were more concerned about credit availability (24%), potentially reflecting tighter lending conditions. In the US, the focus was more balanced, with central bank policy (22%), geopolitics (20%), and inflation (18%) cited as the main external drivers of hedging activity.
Expectations around rate movements remain central to corporate thinking. In the UK, a striking 79% of corporates believe the Bank of England will raise rates next year, and 90% say they plan to increase hedge ratios as a result. Across the Atlantic, 64% of US corporates expect the Fed to raise rates in 2026, with 96% planning to increase their hedge ratios accordingly.
Looking ahead through a geopolitical lens, 92% of corporates overall plan to raise hedge ratios and extend hedge lengths into 2026 in response to ongoing tariff and trade policies. The US cohort (96%) remains more likely than their UK peers (87%) to boost hedge ratios, potentially reflecting stronger concerns over inflation and the fiscal implications of trade barriers.
The overall picture from Q3 is one of measured caution. Corporates didn’t abandon hedging, but they shortened durations and reduced their cover as they awaited clearer policy signals. As the year heads into its final quarter, central bank guidance and tariff-related developments are likely to remain the dominant forces influencing hedging strategies.
Eric Huttman, CEO of MillTech
