“Trump’s election saw the U.S. Dollar Index (DXY) strengthen by roughly 10 percent,” the survey report points out. “Q4 was also a very eventful period for the British pound, given that it had previously neared its highest point in over two years against both the dollar and the euro. Its value against these currencies then dropped significantly in early Q4, in what appears to be the aftermath of struggling business confidence. The risk of unexpected and sharp exchange rate movements increases uncertainty in the market.”

For survey participants, the external factor with the biggest influence on hedging decisions in the fourth quarter was credit availability, cited by 22.1 percent of U.S. respondents and 19.5 percent of those from Britain. Inflation rates (20%) and geopolitics (19%) came in a close second and third among U.S. companies.

“The most important factor influencing hedging decisions overall was credit availability, pointing to an intensification of the credit crunch we’ve witnessed throughout 2024,” the report says. “Tightening lending criteria and more expensive borrowing costs are a common feature of turbulent economic times. This tends to cause liquidity headaches and restrict investment opportunities.”

U.S. companies are responding to the uncertainty and increased risk by lengthening their hedges and buying more options (both cited by 34.8%). Surprisingly, 39 percent of respondents said they plan to decrease their hedge ratio given the increased volatility.

“Through buying FX options, corporates pay for a flexible way to manage uncertainty while still allowing themselves to benefit if exchange rates move in their favor,” the report states. “In a similar vein, extending hedging lengths enables businesses to lock in protection against adverse currency movements for longer.”