Key Moments
- 48% of surveyed UK fund managers plan to raise hedge ratios in 2026, with 46% intending to lengthen hedge maturities.
- The average FX hedge ratio has declined to 46%, while the mean hedge term has edged up to 5.5 months.
- FX hedging costs have climbed 69% over the past year, and almost a fifth of funds report that costs have more than doubled.
Survey Signals Stronger Hedging Intentions
Almost half of UK fund managers are preparing to step up their foreign exchange hedging in 2026 in response to volatility in the pound, according to a new report by FX and cash management solutions provider MillTech.
The study, which polled more than 250 UK-based fund managers on their hedging strategies and associated costs, showed that 48% of respondents intend to increase their hedge ratios, while 46% are planning to extend the length of their hedges over the next year.
Nearly all participants reported that they had incurred losses from unhedged currency exposures.
Market Backdrop: Sterling’s Volatile Trading Pattern
The findings come after a turbulent period in foreign exchange markets, with sterling experiencing pronounced swings in the weeks leading up to British finance minister Rachel Reeves’ long-awaited UK budget last week.
The pound posted a modest gain in November and remains on course for a 6% rise in 2025, its strongest performance since a 9.5% increase in 2017.
Despite that trajectory, sterling is still roughly 4% below a four-year high reached in June, a period when investors steered clear of U.S. assets in response to U.S. President Donald Trump’s unpredictable trade policies. That strength was followed in July by the pound’s weakest monthly showing since 2022.
Current and Planned FX Hedge Positioning
The survey indicates a notable shift in attitude among managers who are not currently hedging their currency risk, with more than half of this group now considering implementing FX hedges.
By contrast, only around one fifth of overall respondents expect to reduce their hedge ratios, and just 7% plan to shorten hedge tenors.
| Hedging Metric | Current / Recent Level | Trend / Intention |
|---|---|---|
| Managers planning to increase hedge ratios | 48% | Intend to raise hedging in 2026 |
| Managers planning to extend hedge lengths | 46% | Intend to lengthen hedge maturities in the next year |
| Average hedge ratio | 46% | Lowest level since before 2023 |
| Average hedge length | 5.5 months | Up from 5.2 last year, below 5.7 in 2023 |
| Managers expecting to reduce hedge ratios | 20% (one fifth) | Plan to scale back hedging |
| Managers planning to shorten tenors | 7% | Intend to reduce hedge durations |
The mean hedging ratio has fallen to 46%, its lowest level since before 2023. The typical hedge term has inched up to 5.5 months, from 5.2 months last year, but remains below 5.7 months in 2023. This points to a more measured stance on FX risk management compared to previous years.
Rising Hedging Costs and Key Concerns
The cost of managing currency risk has increased sharply. MillTech’s report shows that overall hedging costs have risen 69% over the past year.
Almost one fifth of respondents indicated that their expenses had more than doubled. Just over a quarter cited the increased cost of hedging as their primary concern.
Policy Uncertainty and Tariff Risk
The survey also highlights how U.S. tariff policy is weighing on decision-making. Fund managers view the impact of policy shifts on currency levels as being as important as the additional volatility these changes may generate.
High uncertainty around these developments is prompting firms to delay major decisions, the report found.
Growing Role of AI in FX Operations
Artificial intelligence is starting to play a more significant role in FX workflows. According to the survey, one quarter of funds are already integrating AI into their FX processes, and almost one third are actively exploring potential applications.
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