Rising tariffs drive North American firms to boost FX hedging

New research from MillTech has found that tariff-driven foreign exchange (FX) volatility is having a negative impact on the profitability and international competitiveness of North American companies, resulting in a rise in FX hedging activity among corporates.

The MillTech North American Corporate CFO FX Report 2025 surveyed 250 senior finance decision-makers from businesses across the United States and Canada. The report revealed that 69% of firms have seen their profitability or competitiveness abroad diminished due to currency fluctuations linked to US tariffs, while 83% reported losses resulting from unhedged FX risks.

Surge in hedging despite rising costs

According to the report, 91% of North American corporates now hedge their FX risk, a significant increase from 82% in 2024 and 81% in 2023. This rise comes despite a marked increase in hedging costs, with 94% of respondents noting higher expenses - up from 73% last year - and an average cost increase reported at 76%.

Firms are making strategic adjustments to manage the effects of tariffs, with 64% indicating they plan to lengthen their hedge periods. However, the average hedge tenor is at a three-year low of only 4.9 months, suggesting that any shift toward longer hedging remains at an early stage for many organisations.

Changes to manufacturing and sourcing

The research found that 87% of companies had altered their sourcing and manufacturing strategies in response to tariffs, directly affecting their FX transaction volumes and exposures. Even with these challenges, a significant majority of respondents (84%) displayed optimism, with many expressing hope that the short-term challenges from tariffs may be offset by longer-term benefits.

Key FX concerns and hedging trends

Respondents identified the main tariff-related FX concerns as the impact on currency values (36%), high levels of uncertainty hindering major business decisions (34%), and counterparty risks in hedging transactions (33%).

The report also indicated a growing willingness among traditionally non-hedged firms to consider FX risk management, with 65% now open to hedging, up from 51% in the previous year. The most commonly cited obstacle was burdensome infrastructure, mentioned by 83% of those not currently hedging, a sharp rise from 20% last year, suggesting an appetite for hedging that is constrained by tools and infrastructure.

Use of FX options is increasing, with 86% of corporates incorporating them into their strategies. Demonstrating best execution was cited as the top challenge (33%), with others pointing to fragmented service provision (32%) and difficulties related to manual processes (30%).

Technology and strategy shifts

The digitisation of FX transactions continues, with fewer firms relying on phone or email. In 2025, only 29% used the phone and 24% used email to book FX trades, both showing declines over the past two years.

Transparency of FX costs has become the highest priority for corporates (34%), followed by automation (32%) and the credit ratings of FX counterparties (29%). The data also shows an industry-wide shift towards automation and artificial intelligence. Every business surveyed said it was considering automating some aspect of its FX processes, with price discovery as the top use case (34%), while 100% reported exploring how AI can be applied to enhance operations, ranking process automation the highest (43%).

All firms surveyed reported outsourcing some aspect of their FX process, driven by the need for specialised expertise, improved efficiency and automation, as well as scalability and flexibility in operations (30%).

Leadership perspective

"Many corporate CFOs have traditionally treated FX like a duck in the corner of the room. They pay it little attention until it starts quacking loudly. In 2025, that quacking is impossible to ignore. North American businesses are facing an increasingly volatile landscape, with currency shocks and trade disruptions affecting their competitiveness and profitability. This has served as a wake-up call, and more firms are taking out insurance in the shape of FX hedging to protect their bottom lines, even despite hedging costs soaring.

"Many are reassessing their entire FX risk management infrastructure, ditching manual processes and adopting technology like AI and automating manual processes to improve speed, accuracy and decision-making. For too long, currency risk has been treated as a background issue, quietly managed by treasury teams while broader business priorities took centre stage. But in an era where currency swings can erase quarterly gains, proactive FX risk management is essential. Businesses can no longer afford to ignore the duck. It's time to listen, prepare and build smarter, more resilient FX strategies."

This quote from Eric Huttman, Chief Executive Officer of MillTech, underscores the growing importance of FX management in the context of ongoing volatility and shifting economic conditions.

The report highlights that North American corporates are making significant changes to cope with tariff-driven currency swings, with many investing in new technologies and solutions to manage risks and preserve profitability amid challenging trading environments.