UK Fund Managers Move to Strengthen Currency Protection as Pound Remains Unsteady

Post by : Saif Nasser

The British financial sector is preparing for another year of currency uncertainty, as a new report shows that many UK fund managers are planning to increase their protection against foreign exchange risks. This shift reflects a wider mood of caution across markets, especially as the pound has faced sharp ups and downs throughout 2025.

According to the study by MillTech, a company that provides FX and cash management services, almost half of UK fund managers want to raise their hedge ratios in 2026. This means they want to protect more of their portfolios from unexpected moves in currency markets. The report also says that 46% of them plan to extend their hedge lengths, suggesting they want protection for a longer time.

The findings reveal a clear problem: almost every fund manager surveyed admitted that they lost money because they did not hedge their foreign exchange risks. This has pushed many to rethink their approach before another unpredictable year begins.

The pound has been especially unstable in recent months. Ahead of the UK budget presented by Finance Minister Rachel Reeves, market tensions increased and the pound moved unpredictably. Although the currency gained slightly in November and is heading toward its best annual performance since 2017, these improvements have been overshadowed by sharp drops earlier in the year. For example, July saw the pound suffer its worst monthly fall since 2022.

This unstable behaviour has made fund managers more careful. Over half of those who currently do not hedge their FX risk say they are now considering doing so. Only a small group plans to reduce hedging or take on shorter contracts. The overall hedging ratio has fallen to 46%, the lowest level since before 2023, while the average hedge term has risen slightly to 5.5 months.

However, this increased caution comes at a cost. The price of hedging has climbed sharply—up 69% in one year. Nearly 20% of respondents said their hedging costs had more than doubled. This jump in expenses has become a serious concern for many asset managers.

Global factors are also influencing their decisions. With growing worries about U.S. trade policies under President Donald Trump, fund managers have been watching how these changes affect currency values and market stability. Many are delaying important investment actions because of ongoing uncertainty around tariffs and geopolitical tensions.

One important trend noted in the report is the rise of artificial intelligence in foreign exchange processes. About one-quarter of funds already use AI tools for hedging decisions, while nearly one-third are exploring its potential. As currency markets become more complex, many expect AI to play a bigger role in helping firms act quickly and manage risks more efficiently.

Overall, the report shows a financial sector trying to adapt to a world where currencies can swing at any moment and global policy decisions create immediate effects. UK fund managers are choosing safety, planning for larger and longer hedges to shield their portfolios from the next wave of volatility. Whether these measures will be enough depends on how the global economy moves in the coming year, but the shift in attitude is clear: protection is now a priority.

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