Dollar Turbulence Drives FX Hedging Boom Among North American Fund Managers

A new report from advanced FX and cash management solutions provider MillTech, has revealed that amid rising dollar volatility, the vast majority (85%) of North American fund managers now hedge their forecastable currency risk, up from 79% last year and 72% in 2023.

The MillTech North American Fund Manager CFO FX Report 2025 analyses the findings from a survey of 250 senior finance decision makers at funds across the US and Canada, revealing how they are changing their hedging strategies in response to politically driven dollar volatility, and leveraging AI and automation in their FX processes.

The dollar experienced its worst first-half performance since 1973, weighed down by aggressive US trade policies, rising fiscal concerns, and expectations of Fed rate cuts, posing significant uncertainty for fund managers. While 99% said their returns had benefited from these politically driven swings, over a third (37%) say they’ve suffered losses due to unhedged FX risk, and 99% report concerns over the impact of dollar volatility on foreign market exposure. Of those currently not hedging, 70% are now considering doing so due to current market conditions, a huge increase from only 16% in 2024.

Despite the increase in the number of funds hedging, the mean hedge ratio dropped to 45% from 55% in 2024, while hedging lengths shortened to 5 months from 5.4 months. However, in response to rising volatility, 54% are increasing their FX hedging ratios, while 52% are extending hedging lengths. These are both defensive moves to protect a larger part of their exposure and lock in certainty for longer.

Nearly all (99%) of fund managers surveyed reported huge increases in the cost of hedging, with 58% reporting cost increases of between 50% and 100%, and 5% saying their costs had risen over 100%. The average increase was 57%. Two in five (41%) funds that don’t hedge cited costs as the primary reason for opting out.

Other key findings include:

Biggest tariff concerns – Counterparty risk in hedging transactions (41%), the impact of policy changes on currency values (35%) and increased volatility (34%) were the top US tariff concerns.

Increased option adoption – Nearly every fund surveyed (95%) has increased its use of options, showing that they are finding new ways to manage the increasingly volatile dollar.

Shifting priorities – Automation of manual processes and transparency of costs were the top priorities for North American corporates (40%), as opposed to the credit ratings of FX counterparties (36%) and uncollateralised hedging (39%), which were top in 2024.

Top products for hedging FX risk– Currency swaps (53%) and FX swaps (52%) were the top products used for FX hedging, followed by spot transactions (48%) and options (42%).

Key challenges in 2025 – Fund managers’ biggest challenges when handling FX operations in 2025 were fragmented service provision (36%), securing credit lines (35%) and demonstrating best execution (34%).

Key processes outlined for automation – Fund managers were most keen to automate settlement (49%), price discovery (47%) and risk identification (46%).

Fierce appetite for AI – North American fund managers are rapidly adopting AI, with 42% already using the technology and 35% aggressively looking at how AI can create efficiencies. 

Outsourcing – All (100%) fund managers surveyed were outsourcing some part of their FX processes, with the main motivations being access to specialised expertise (36%), risk management and compliance (34%), and scalability and flexibility in operations (32%).

Eric Huttman, CEO of MillTech, commented: “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 quickly market conditions can reverse. For funds, our research shows this volatility cuts both ways: some have profited from politically driven swings, while others have seen unhedged positions painfully exposed. The message is clear: FX risk can no longer be left to chance.

“The good news is that for many fund managers, FX risk management has moved to the top of the agenda. There is now broad recognition that well-executed hedging strategies can protect margins and cushion against unexpected losses. At the same time, outsourcing FX operations to experienced providers offers access to specialist expertise, greater efficiency, and full transparency. In a market where a single currency move can erase months of gains, proactive FX management is no longer optional; it is essential to preserving performance and investor trust.”

To find out more about North American fund managers’ evolving FX hedging strategies, the effect of tariffs and the drive for automation, as well as geographic comparisons between the US and Canada, download the report here: https://milltech.com/resources/currency-insight-and-education/the-milltech-north-america-fund-manager-fx-report-2025