Currency Risk Is Rising: Why U.S. Companies AreHedging Less Despite a Volatile Dollar

Educational research only — not investment advice.

Currency hedging is becoming less common at a surprisingly risky time.

U.S. and UK companies reduced their foreign-exchange protection sharply in the second quarter of 2026.

The average hedge ratio fell from 57% to 46%, while the average hedge period dropped to just 5.7 months.

That means companies are leaving more of their international revenue and costs exposed to currency swings.

What Is Currency Hedging?

Companies operating internationally constantly exchange currencies.

A U.S. company may earn euros in Europe but report profits in dollars.

If the euro falls before those revenues are converted, the company receives fewer dollars.

A hedge can lock in an exchange rate in advance.

The basic idea is:

known exchange rate → more predictable profits

Companies often use forwards, options and swaps to manage this risk.

Why Are Companies Hedging Less?

One reason is flexibility.

MillTech found that almost half of surveyed companies now hedge only 26% to 50% of their currency exposure.

Companies appear less willing to lock in exchange rates for long periods while central-bank policy remains uncertain.

Actual currency volatility also eased during the second quarter after jumping earlier in the year.

That may have reduced the urgency to buy protection.

But lower recent volatility does not mean future volatility will stay low.

Why Interest Rates Matter

Currencies react strongly to differences between central-bank rates.

For example:

higher U.S. rates relative to Europe → dollar can strengthen

higher European rates relative to the U.S. → euro can strengthen

When rate expectations change quickly, exchange rates can move sharply.

That matters for multinational companies because even a small FX move can change reported revenue and earnings.

A Strong Dollar Can Hurt U.S. Companies

Imagine a U.S. company earns €100 million in Europe.

At $1.15 per euro, that equals:

$115 million

If the euro falls to $1.05, the same €100 million becomes:

$105 million

The underlying European business has not changed.

But reported U.S.-dollar revenue falls by $10 million.

Currency hedging can reduce that earnings volatility.

Why Companies May Accept More Risk

Hedging is not free.

Companies may decide that buying large amounts of protection is too expensive or could prevent them from benefiting if the currency moves in their favor.

Some are therefore taking a more tactical approach:

smaller hedge ratios + shorter contracts + more flexibility

That can work when currencies remain stable.

It becomes more dangerous when markets suddenly move.

MillTech warned that historically low protection leaves companies with less room for error if interest-rate paths diverge or FX volatility rises again.

Which Companies Are Most Exposed?

Currency risk matters most for businesses with large international operations.

Examples include:

  • technology companies
  • consumer brands
  • pharmaceutical firms
  • industrial exporters
  • airlines
  • multinational manufacturers

Investors should therefore pay attention to phrases such as “FX headwind” or “constant-currency growth” in earnings reports.

A company can post strong underlying sales but still report weak earnings because of exchange-rate movements.

What Should Investors Watch?

Watch the U.S. dollar, Fed policy, ECB rates, corporate FX guidance and hedge ratios.

The key question is simple:

Are companies reducing hedges just as currency risk begins rising again?

If FX markets remain calm, the strategy may save money and improve flexibility.

If the dollar begins moving sharply, companies with lower hedging could face much greater earnings volatility.

Track Currency Risk With TradingSimuLab

TradingSimuLab’s Macro tools help users study currency trends, interest-rate conditions and changing market regimes.

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