Faced with setting a 2026 FX strategy, most businesses will default to ‘staying flexible’. They want to avoid firm commitments given the uncertainty across the sterling, dollar and euro – why lock in a strategy now when so much could change?
But here’s what we’ve observed working with clients who follow predetermined FX policies and those that react to market conditions: flexibility without structure can have a cost. Businesses that follow FX policies are consistently able to take advantage of market movements, while reactive players rarely can.
Take a recent example. Sterling-dollar has rallied from 1.24 to 1.38 since 2024 and we’ve seen businesses rush to lock in 12 to 18-month forward contracts because rates look favourable. Keep buying more and more until you’re over-hedged and you lose twice: no room to participate if sterling strengthens and you’re locked in if the market reverses.
That’s the risk of reactive, emotional FX decisions – hedging heavily at peaks because rates feel good, then avoiding hedging entirely when rates deteriorate because you’re reluctant to commit again. You can end up with maximum exposure at the worst possible times.
Defining your parametres
The solution isn’t avoiding hedges or trying to time markets better. It’s defining, in advance, the rules that determine when and how you respond to rate movements, regardless of how the market feels in that moment.
An FX policy provides that clarity. Having a framework that outlines at what rate levels you act, in what increments you hedge and under what market conditions you adjust exposure, enables confident, consistent decisions. For example, your policy might include a rolling hedge structure, maintaining 80% coverage for your most immediate quarter’s exposure, then scaling down to 60%, 40% and 20% as you move further out, where forecast certainty weakens. Each quarter, you add another layer to restore this structure.
This keeps roughly half your annual exposure hedged at any given time, so you always have protection, but you always have room to participate when rates move in your favour. And to stay flexible around significant moves, you can build deviation triggers into your policy.
Most finance directors don’t have time to monitor the markets daily, but understand how fluctuations can materially affect their P&L – for example, with a £10m exposure, a 1% move either way could cost your business £100k.
This is where automation becomes valuable. Using tools like market orders and onecancels-the-other orders to execute your policy removes pressure from fast decisions. They can capture your target rates as soon as they become available.
But, remember tools, structures and triggers only work when there’s a policy to execute.
2026 is likely to be another year of currency volatility; it won’t wait for you to feel ready. The systematic frameworks that protect margins and capture opportunities need to be in place before markets move, not built in reaction to them. If your year-end planning is already underway, your FX policy development should
be too.
