CFOs plan to boost FX hedging ahead of U.S. election, report says

The 2024 North American Corporate CFO FX Report is new research released by London-based MillTechFX, a multi-dealer FX platform. Eighty-six percent of the survey respondents plan to increase their currency hedging activity ahead of the election, despite 73% saying hedging costs have risen, while 66% intend to increase the duration of their hedges.

FX hedging is a strategy used to protect against risks associated with fluctuations in foreign currency. One example is a so-called currency forward hedge that locks in the exchange rate for the purchase or sale of a currency on a future date.

The most hedged currency pair is USD/CAD, with 30% of respondents prioritizing it, followed closely by USD/CNY (28%), EUR/USD (25%), and GBP/USD (25%), according to the report.

The biggest FX-related concerns surrounding the coming election are the impact of policy changes on currency values (44%), unpredictable market movements (38%), increased volatility (37%) and counterparty risk (35%). The findings are based on a survey of 250 CFOs, treasurers, and senior finance decision-makers at North American companies that have a market cap of $50 million to $1 billion.

Presidential elections bring uncertainty, Eric Huttman, CEO of MillTechFX told me. I asked him if there’s more FX hedging activity ahead of the 2024 presidential election compared to prior years. Research suggests market participants weren’t hedging their FX risk as much ahead of the 2020 U.S. presidential election, he said. Huttman pointed to data published by Coalition Greenwich at the time which stated 80% weren’t planning to hedge because it was too expensive and too difficult. That’s in contrast to the majority of MillTechFX’s survey respondents planning to do so, Huttman said. 

The potential for policy shifts, changes in economic direction, and geopolitical moves can weigh on markets and cause fluctuations in currency values, he said.

My colleague Geoff Colvin takes a look at topics such as these, including tariffs, in his latest piece, “Kamala Harris vs. Donald Trump: Who is the better president for business?” As the presidential election approaches, “all signs point to higher tariffs on American imports—no matter who wins,” Colvin writes.

I asked Huttman if there are any drawbacks to increasing FX hedging activity. “It is not as simple as turning on a switch,” he said. CFOs must thoroughly evaluate their exposures to determine the extent to which they can afford to hedge, Huttman said. Ensuring the efficiency of FX processes—from price discovery to settlement—and selecting the right banking partners and providers is also essential, he said. 

For those CFOs surveyed who didn’t hedge, the top three reasons were believing capital is better deployed elsewhere (47%), hedging being too expensive (33%) and having insufficient credit lines (33%). 

Another finding of the report is that 93% of respondents said their bottom lines were affected by the strong dollar. Nearly all believe the dollar will continue strengthening and their top concerns are profit margin erosion and competitive disadvantage. 

A strong dollar requires treasury teams to carefully manage FX risks and optimize cash and liquidity management, according to the report.

Sheryl Estrada
sheryl.estrada@fortune.com

The following sections of CFO Daily were curated by Greg McKenna.

Leaderboard

Marc Thompson was appointed CFO of talent acquisition company iCIMS, effective immediately. Thompson joins iCIMS from EverCommerce, where he served as CFO and led the SaaS company through its IPO. He also previously served as co-head of investment banking at Oppenheimer & Co, where he formed the division’s software and services team.

Mike Grisko was appointed CFO of online learning company Aceable. Grisko arrives from Atmosphere TV, where he also served as CFO and helped the company achieve a $1 billion valuation during its Series D financing in 2022. He previously held the same position at Chive Media Group and has also worked in investment banking and advisory roles for firms such as Moelis & Company, PwC, and Lincoln International.

Big Deal

Finance teams have rapidly encountered skill shortages in the age of artificial intelligence and cloud computing, according to insightssoftware’s 2024 Finance Team Trends Report. Ninety-two percent of 500 financial professionals from Europe and North America who were surveyed reported skill gaps on their teams, up from 41% the year before.

Those polled cited a diverse range of contributing factors for this skill deficit, with rapid technological advancements (38%), rapid industry growth (38%), changing work patterns (34%), and economic changes (34%) as the most common culprits.

Meanwhile, only 27% of those polled said their teams had moved all their applications to the cloud, with 62% utilizing on-premises systems along with the cloud. Those whose teams had not fully migrated to the cloud cited security concerns (42%), cost management (37%), and lack of budget (37%) as the three biggest impediments to such a move.

Going deeper

“Intermediary Elasticity and Limited Risk-Bearing Capacity” is a new paper from finance professors Amy Wang Huber from the University of Pennsylvania’s Wharton School and John Hopkins University’s Yu An. The spectacular unwinding of the Yen carry trade was a frequently cited contributor to the market sell-off in early August, but determining the size of the carry trade globally has proven difficult. Huber and An’s method of focusing on FX trades that cannot be further diversified, however, can uncover the impact of a trading demand shock in one currency on other currencies and asset markets.

Overheard

“It’s not just the overall number, it’s the composition of it, and we have no idea yet what the composition is.”

— Daniel Pinto, the president and COO of JP Morgan, said at the Barclays Global Financial Services Conference about Fed vice-chair Michael Barr slashing the proposed increase in capital requirements for America’s largest lenders, Fortune reported.