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TREASURY

Corporate hedging strategies remain unchanged despite growing macro uncertainty

European corporates saw losses from currency volatility fall late last year, so hedging has stayed largely unchanged.

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Photo: iStock

European corporate losses from currency volatility were 80% lower between October and December 2021 than they were in the previous three-month period, according Kyriba’s latest currency impact report.

The South African rand, Australian dollar and Mexican peso were the most volatile currencies during this period.

Increased volatility also means higher bid-ask spreads and traditionally more expensive hedging costs
Kenneth Broux, Societe Generale
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These currencies tend to be among the most volatile during periods of market turmoil when pessimism around the global economy increases. When confidence is low, investors tend to rush to safe havens such as USD, JPY and CHF, and limited liquidity magnifies moves when everyone rushes for the exit at the same time.

“Confidence in the peso vanished last November when Mexican president Andrés Manuel López Obrador reconsidered his decision to nominate former finance minister Arturo Herrera to head the central bank and instead selected Victoria Rodriguez Ceja, who had little experience in monetary policy affairs,” says Kenneth Broux, head of corporate research FX and rates at Societe Generale.

Currency moves can also be exacerbated by lopsided positioning.


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