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FX hedging strategy has once again come into focus for European corporates. Markets continue to adjust to a weaker dollar, shifting interest rate expectations and ongoing geopolitical uncertainty. As a result, many exporters now ask not only how much to hedge, but also how long to hedge for and how flexible those hedges should be.
A recent article in Risk.net, European exporters add flexibility to FX hedges, highlighted how corporates with US dollar revenues are shortening hedge tenors and adding more optionality to their FX risk management programmes. Vedanta Hedging CEO Abhishek Sachdev was among the experts quoted, sharing insight into how UK-based clients are adapting.
Please see article here: European exporters add flexibility to FX hedges
In this article, we build on that discussion – looking at why hedge horizons are shrinking, how options and collars are being used, and what UK treasurers can do to introduce more flexibility without losing control of risk.
In the past, some large European exporters felt comfortable hedging US dollar revenues several years into the future. Today, however, many of these firms prefer shorter-dated and rolling hedges, often around the three-month point or less.
“It’s unusual that we’re seeing hedges like 7 and 14 day forwards, which I don’t normally see from clientele. People who have been doing, say, 60 or 90 day forwards are now doing a rolling window to 14 day hedges”
– Abhishek Sachdev, CEO, Vedanta Hedging
This change reflects greater uncertainty over future cashflows and trade conditions. It also reflects a reluctance to lock in today’s weaker dollar levels for multiple years. By shortening hedge tenors, treasurers create more opportunities to reassess positions as central bank policy and market sentiment evolve. At the same time, they still aim to maintain a reasonable level of earnings protection.
Interest rate differentials still play a major role in the cost of hedging. For some exporters, one-year forwards include a noticeable carry cost, even though many market participants now expect US rates to fall.
In response, treasurers increasingly combine several approaches. They stagger hedges across different maturities to smooth entry points. They also use more options and collars to set a clear worst-case rate while keeping some upside if FX moves in their favour.
As rate expectations change, treasurers then adjust these rolling strategies. In doing so, they try to balance protection, cost and flexibility, while still working within board-approved treasury policies.
Similar themes appear in the UK mid-market. As the Risk.net article notes, some corporates now favour very short-term rolling forwards, sometimes only a few weeks at a time. This approach allows them to react more quickly to market moves and changing cashflow forecasts.
In addition, others are willing to pay a premium for flexi-forwards, which allow early drawdown within an agreed window and can be useful where the timing of receipts is uncertain. While these approaches can offer more tactical flexibility, they also increase the importance of strong governance, clear documentation and regular monitoring.
In addition, some treasurers now choose flexi-forwards. These contracts allow early drawdown within an agreed window and can help when the timing of receipts remains uncertain. However, this extra flexibility often brings higher explicit costs and greater operational demands. Therefore, firms need strong governance, clear documentation and regular monitoring to ensure these structures genuinely support risk management rather than speculation.
FX hedging strategy for European exporters is shifting away from long-dated, static positions towards shorter and more flexible structures. Shorter tenors, greater use of optionality and, in some cases, flexi-forwards are helping treasurers navigate a more uncertain macroeconomic backdrop.
We were pleased to contribute to this timely discussion in Risk.net, and we continue to work closely with clients to design bespoke hedging strategies that balance flexibility with governance.
Your FX hedging strategy should be reviewed regularly to ensure it aligns with current market expectations and treasury objectives. In today’s volatile environment, flexibility and speed matter more than ever.
You can reach us on 0207 183 2277 or at info@vedantahedging.com.
