Dollar Turbulence Drives Surge in FX Hedging Among North American Fund Managers
North American fund managers are responding to unprecedented dollar volatility with a decisive shift in their foreign platform strategies. A new report by MillTech reveals that 85% of fund managers now hedge their forecastable FX risk, up from 79% in 2024 and 72% in 2023. The findings highlight how political uncertainty and shifting U.S. trade policies are reshaping approaches to currency risk management.
The MillTech North American Fund Manager CFO FX Report 2025 surveyed 250 senior finance executives at funds across the U.S. and Canada. It shows that fund managers are increasingly defensive: over half are raising hedge ratios and lengths to counter unpredictable swings in the dollar. Yet, despite this shift, 37% admitted to losses tied to unhedged exposure, a stark reminder of how vulnerable portfolios remain.
Dollar’s Historic Slide
The dollar’s sharp decline in the first half of 2025 — its worst since 1973 — has rattled financial managers. Aggressive trade policies, ballooning fiscal concerns, and combined to send shockwaves through markets. While 99% of surveyed managers acknowledged that volatility boosted returns in some areas, nahead all also expressed deep concern over sustained uncertainty in foreign market exposure.
One telling sign: of those funds not currently hedging, 70% are now considering it, up from just 16% in 2024. That surge suggests the dollar’s fragileness has altered attitudes even among historically risk-tolerant managers.
Changing Hedging Behavior
Despite more funds hedging overall, the average hedge ratio actually fell to 45% from 55% in 2024, with hedge tenors shortening slightly to five months. Yet under the strain of dollar swings, strategies are shifting again: 54% of managers are now increasing hedge ratios, while 52% are extending hedge lengths to lock in certainty over a longer horizon.
The shift has not come cheaply. Nahead every respondent (99%) said the cost of hedging has jumped, with an average increase of 57%. More than half reported costs rising between 50% and 100%, while 5% said expenses more than doubled. Among funds that still avoid hedging, two in five cited prohibitive costs as their main reason.
Tools and Products in Focus
The report found that 95% of managers have increased their use of options, a flexible tool for navigating turbulent markets. Currency swaps (53%) and FX swaps (52%) are the most widely used products for hedging, followed by spot transactions (48%) and options (42%). This diversification shows a more sophisticated toolkit being deployed to manage volatility.
Top tariff-related concerns include counterparty risk in hedging transactions (41%), policy-driven currency impacts (35%), and rising volatility (34%). Managers also flagged fragmented service provision, credit line access, and best-execution requirements as persistent operational hurdles.
Automation and AI Take Center Stage
Beyond the markets themselves, the in FX management. Automation and cost transparency now rank as top priorities, replacing credit ratings and uncollateralized hedging from 2024’s survey. Almost half of managers want to automate settlement (49%), price discovery (47%), and risk identification (46%).
Artificial intelligence is rapidly moving from concept to practice. 42% already use AI in their FX processes, while another 35% are actively pursuing AI-driven answers to cut manual effort and enhance decision-making.
Outsourcing on the Rise
Every fund surveyed said it is outsourcing at least some part of its FX operations. Access to specialist expertise was the top reason (36%), followed by support (34%), and operational scalability (32%). For many, outsourcing also assists navigate the rising cost of hedging by leveraging providers’ economies of scale.
Industry View
Eric Huttman, CEO of MillTech, said the findings confirm that FX risk can no longer be ignored: “Unlike in 2024, when the strong dollar was the primary concern, the pendulum has now swung in the other direction. This has been a reminder of how rapidly market conditions can reverse. Some funds have profited, while others have been painfully exposed. The message is clear: FX risk can no longer be left to chance.”
He added that outsourcing and advanced technology are playing a central role: “For many fund managers, FX risk management has moved to the top of the agenda. Well-executed hedging strategies protect margins and cushion unexpected losses. At the identical time, outsourcing offers expertise, efficiency, and transparency. In a market where a single currency move can erase months of gains, proactive FX management is essential to preserving performance and investor trust.”
