FX risk is now embedded in most commercial decisions UK firms make, yet many are entering 2026 without a single source of truth for how that exposure should be created, measured or protected.
The cost of that internal misalignment isn’t visible on a Bloomberg screen, but it shows up quickly in margins.
Most organisations expect market volatility. A typical year still delivers a 10–15% range in sterling–dollar – a £100,000 swing on a $1m exposure. What many don’t anticipate is how internal behaviour can amplify that risk long before the market does.
The cost of FX silos
When pricing, procurement and treasury teams base exposure on different assumptions – or cost contracts against different budget rates – the business begins, unintentionally, to run competing FX strategies. That divergence, rather than the market movement itself, is often what turns routine currency fluctuations into margin erosion.
The root cause is almost always the same: governance, not markets.
In many organisations, there is no single owner of FX risk. This lack of leadership means no defined risk appetite and no agreed methodology for setting internal planning rates which govern commercial decisions from pricing to hedging. In that vacuum, competing objectives and assumptions multiply.
This internal misalignment compounds over time, quietly reshaping the exposure the business thinks it has.
Sales teams end up costing multi-month contracts on one outdated costing rate while procurement commits to suppliers at spot. Meanwhile, finance plans performance on HMRC’s monthly exchange rate, which bears no relation to either.
Treasury is then asked to hedge an exposure that no longer reflects the business’s commercial reality. The result is not one FX position but several; each pulling the business in a different direction.
So, despite believing they have minimised FX risk because they are hedged, firms quickly discover the margin they were protecting no longer exists.
Once internal assumptions have eroded the economics, little room is left to secure rates on the firm’s terms. The hedge merely ends up protecting what is left.
Alignment in practice
For firms entering 2026 – a year where uncertainty is already priced into boardroom thinking – there is a significant advantage in eliminating any internal volatility.
But this isn’t achieved simply by hedging more or watching markets more closely. It’s by defining, in advance and across the business, the economics you are trying to protect… and then ensuring every FX decision is anchored to that definition.
Without this alignment, even the most carefully constructed hedging strategy simply reinforces inconsistencies that have already taken root in the business.
Effective FX frameworks tend to have clear senior ownership and board-level agreement on how risk should affect margins, volatility and growth. Risk appetite is usually defined in commercial terms – how much margin volatility the business is prepared to tolerate – and used to set a set of internal reference rates that govern behaviour. For example:
- Budget rates carry explicit tolerance ranges, so movement beyond them triggers action rather than debate.
- Hedge coverage follows forecast certainty, not market views, translating those assumptions into realised outcomes.
- Treasury’s role is execution within agreed parameters, not reactive judgment calls made in isolation.
Once developed, your framework should be stress-tested against adverse FX scenarios by modelling the impact on cash flows and margins. You can then assess whether your parameters clearly dictate when to absorb, hedge or reprice currency moves.
The firms that do this should enter 2026 not just hedged against surprises, but positioned to exploit them, offsetting currency revenues and costs with faster decisions and healthier margins.
