THETRADETECHFX DAILY from the floor
FX HEDGING MOVING TO CENTRE STAGE
As currency markets continue to be driven and influenced by geopolitical trends and policy changes, just how important is hedging? Looking ahead to 2026 and the evolving economic and geopolitical landscape, it continues to be increasingly evident that having an FX hedging program in-place for global portfolios can be a useful tool to help manage volatility in turbulent markets. Externally, we are witnessing this unfold in real-time via significant increases in prospective and current client relationship requests, whether inquiring about customised FX hedging solutions, benchmark FX hedges, or opening new hedged share classes across various currencies and strategies that we offer. In addition, internally, we have taken steps at T. Rowe Price to help navigate volatile currency markets with our Portfolio Managers. Most recently, our Trading Data Science Team has created a proprietary in-house tool which utilises both third-party broker and vendor datasets, with the ability to forecast FX trading costs and run test simulations on proposed trades- pulling historical and forward-looking volatility, liquidity, and cost metrics to help PMs make informed decisions on their trade timing and execution. We are also constantly keeping track of new developments regarding FX vendor offerings or unique third-party data sources, and we have built meaningful partnerships with our product team to ensure we are able to deliver on our client’ s hedging needs as we grow our platform offering. Overall, we believe that FX hedging will continue to see a rise in interest and utilisation both internally and externally, as investor goals become increasingly complex and sophisticated.
Your panel discusses dynamic versus static strategies, as a trader where do you sit / see the most benefit? Our team at T. Rowe Price, the FX and cash investment management team, ultimately works in-tandem with a multitude of portfolio managers( PMs)
As geopolitical risk and policy uncertainty continue to drive currency markets, FX hedging is becoming an increasingly vital tool for global asset managers, SCOTT FERGUSON, VP, lead analyst, FX and cash management, T. Rowe Price tells The TRADE, with demand rising for both dynamic and static strategies.
across the firm whom all have different views on their style of hedging and how they seek to implement it. Our role on the desk as analysts is to facilitate their views in the best, mostefficient way possible while working extremely closely and partnering with the FX trading and trading analytics teams. Daily discussions we have on the desk with our various PM’ s across asset classes( equity, fixed income, and multi-asset) involve deciding the tenure and sizing of FX hedges, discussing the current liquidity outlook across currency pairs which they are actively hedging or deciding whether to hedge, discussing and showcasing metrics for both pre-and-post trade around the cost of hedging or implementing an FX hedge, and discussing their drift tolerances for dynamic hedges and how often we should rebalance. In addition, we manage all of the firm’ s hedged shareclasses, where we must consider regulatory guidelines and ensure that our hedge book is always within full compliance. While we don’ t hold a specific view on the dynamic vs. static debate- we are constantly involved in either hedging style, and we have also found value in utilising peer-to-peer trading venues for specific FX forward rolls in recent years. Our core team’ s offering includes a blend of proprietary systems, 3rd party systems, and both internal and external data sources to help provide a best-in-class service to our portfolio managers.
When it comes to diversification versus risk management, how can the right balance be found? Finding the right balance is certainly the age-old question within FX portfolio management, but there are key considerations that firms can take to ensure they are working towards their desired goals. At T. Rowe Price, this includes having experienced traders and analysts on the desk who have been through the ups-and-downs of volatile FX markets and understand the constantly changing liquidity dynamics within them. Our traders are able to supplement this experience and knowledge through both, strong relationships with our valued sellside broker partners, as well as robust data and systems internally in order to have the tools at their fingertips to help PMs navigate global markets and achieve their risk and diversification goals. Ultimately, finding the right balance of downside protection, benchmark positioning, and alpha seeking strategies is paramount to our investors as we strive to execute on our client’ s investment objectives and goals.
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