The global foreign exchange market is experiencing an unprecedented volatility. After the Trump administration suddenly announced the imposition of tariffs on April 2, the US dollar index continued to decline. On Monday (April 21), it hit a nearly three-year low of 98.16, while the EUR/USD strongly broke through its three-year high. Faced with this' tariff shock wave ', American multinational corporations have taken urgent action by significantly extending the currency hedging cycle from the usual few months to 2-5 years, setting a rare record in recent years. Behind this "super long defense war" on exchange rates, it reflects the deep concerns of enterprises about the long-term nature of the trade war.

1. Record breaking extension of hedging cycle

Over the past week, we have seen clients extending their hedging periods to the longest period currently feasible, "revealed Eric Huttman, CEO of MillTechFX. According to data from Mizuho Bank, its customers generally adjust their hedging cycle from short-term to 2-5 years, which is extremely rare in the past. Paula Comings, the head of foreign exchange sales at Bank of America, pointed out that companies are frantically adjusting their strategies and urgently shifting their focus from the Canadian dollar and Mexican peso to the euro.

2. Option strategy has become a new favorite

Against the backdrop of soaring costs of traditional forward contracts, option strategies are becoming the new favorite of enterprises. According to data from the London Stock Exchange, the one month implied volatility of the euro has surged by 72% since the announcement of tariffs, while the two-year implied volatility has only increased by 23%. Kyriba Global Support Director Bob Stark explained, "Options allow businesses to avoid locking in future trends right now, which is particularly valuable in the current environment." This flexibility helps businesses cope with potential tariff "black swan" outbreaks at any time.

3. The double-edged sword of weak US dollar

Although the depreciation of the US dollar benefits American exporters, the chain reaction it triggers is even more worrying. According to Garth Appelt's analysis, "The weakness of the US dollar has become the biggest byproduct of tariff volatility." Even for countries that have received a 90 day tariff suspension, their currency fluctuations have not subsided. What's even more tricky is that although the strong euro has increased the conversion value of European business income, it has also pushed up operating costs in Europe, putting companies in a dilemma.

Summary: An Endless Currency War

When Trump's tariff stick collides with the Federal Reserve's policy shift, the foreign exchange market is staging a 'perfect storm'. Enterprises are forced to extend their hedging front for several years, reflecting a profound expectation for the prolonged nature of the trade war. This currency defense war has exposed two cruel realities: first, traditional hedging tools are becoming increasingly ineffective in the face of political risks; Secondly, enterprises no longer expect short-term fluctuations to subside, but instead build defensive fortifications for a "protracted war".

Key outlook: If the US dollar continues to weaken, emerging market currencies may face a new round of turbulence; Political factors are surpassing economic indicators and becoming the primary driving force for exchange rates; 'Ultra long term hedging' may stimulate innovation in new financial derivatives

In this currency war without gunpowder, the "readiness" of corporate foreign exchange departments may continue to escalate with every dynamic message from Trump.