FX Risk Management in a Weak Dollar Year: What Treasurers Should Do Now

The US dollar has entered one of its weakest periods in years. After years of dollar strength, 2025 marked a significant reversal. The US Dollar Index (DXY) fell by nearly 10% in 2025, its biggest fall since 2017. While currency moves are always a complicated picture, a combination of rising fiscal concerns, tariff uncertainty, and a narrowing US growth advantage appear to have shifted investor sentiment and increased currency volatility.

Many major banks expect that trend to continue at least through the first half of 2026, before any meaningful recovery later in the year.

For corporate treasury teams, the implications go well beyond foreign exchange markets.

A weaker dollar changes the value of overseas revenue, procurement costs, intercompany funding, and cash balances held across currencies. At the same time, companies are becoming more proactive. The average corporate hedge ratio rose to 57% in Q1 2026, up from 49% in Q4 2025. This is the highest level since the survey began, reflecting a broader shift toward more defensive currency risk management

The issue is, without accurate, real-time visibility into FX exposure, even sophisticated FX risk management programs rely on outdated assumptions and manual estimates.

The Impact of a Weak Dollar

A weaker dollar doesn't affect every business the same way. Its impact depends on where a company generates revenue, sources materials, pays suppliers, and holds cash. For multinational organizations, even modest currency movements can ripple through the income statement, balance sheet, and cash flow forecast.

For US-based exporters, a weaker dollar can be a tailwind. Revenue earned in euros, pounds, or other foreign currencies translates into more US dollars when consolidated, potentially boosting reported sales and earnings. Companies with significant overseas operations may also see favorable translation effects on foreign assets and profits.

But those benefits often come with tradeoffs. Businesses that rely on imported goods or pay suppliers in foreign currencies may face higher costs as the dollar loses purchasing power. Cross-border payroll, capital expenditures, and intercompany funding arrangements can also become more expensive or less predictable, while fluctuations in exchange rates introduce additional transaction and translation risk that can create unexpected earnings volatility from one reporting period to the next.

For treasury teams, these competing forces make foreign exchange management significantly more complex. The objective is to balance multiple priorities at once, managing currency risk while also protecting earnings from excessive volatility, maintaining predictable cash flows, supporting the business's operational needs, and avoiding the unnecessary cost of over-hedging. 

As exchange rates become more volatile, achieving that balance depends less on market forecasts alone and more on having a clear, timely understanding of the organization's actual currency exposures.

Currency Hedging Is Becoming More Important

Many organizations already use currency hedging to reduce earnings volatility.

Common instruments include:

• Forward contracts

• FX swaps

• Options

• Natural hedges through operational cash flows

The challenge is determining how much to hedge and which exposures most need to be managed. Over-hedging introduces unnecessary cost and basis risk, while under-hedging leaves earnings exposed to continued dollar depreciation. Both outcomes often stem from the same underlying problem, incomplete exposure data.

Why Most FX Exposure Data Is Still Manual

What is our net euro exposure right now?

For many organizations, the answer is anything but straightforward.

Finding it often means pulling cash balances from multiple banking portals, extracting receivables and payables from one or more ERPs, reconciling intercompany positions, consolidating spreadsheets from regional finance teams, and manually converting everything into a common reporting currency. What appears to be a simple question quickly becomes a time-consuming exercise involving disconnected systems and manual processes.

The challenge is that foreign exchange exposure continues to change while treasury is gathering the data. Customer payments are received, supplier invoices are settled, intercompany loans are funded, and cash moves between accounts every day. By the time the analysis is complete, the organization's currency position may already look different.

This creates a gap between market conditions and treasury decision making. Hedge ratios, earnings at risk analysis, and hedge sizing are frequently based on information that is already stale, making it harder to respond confidently as exchange rates move.

In a volatile market, the hard part is usually identifying exactly what needs to be hedged. Without timely visibility into net FX exposure, even a well-designed hedging program can be built on incomplete or outdated information.

Better FX Risk Management Starts with Better Visibility

Effective FX risk management starts with a clear understanding of the organization's actual currency positions. That sounds simple, but for many treasury teams, exposure data is spread across banks, ERPs, forecasting tools, and spreadsheets, making it difficult to see the complete picture in one place.

To accurately measure risk, treasury needs visibility into cash balances held in each currency, outstanding receivables and payables, forecasted cash flows, intercompany funding, and existing hedge positions. Looking at any one of these in isolation provides only part of the story. Meaningful exposure analysis requires bringing them together into a single, current view of the organization's global currency position.

Once that foundation is in place, treasury can:

• Measure net exposure by currency

• Quantify the earnings volatility the company is carrying

• Project how much liquidity each currency will require over time

• Set a hedge ratio that reflects the real level of risk

Without reliable exposure data, those decisions rely on assumptions. With timely, consolidated visibility, treasury can size hedges more accurately, improve earnings at risk and cash flow at risk analysis, and respond more confidently as market conditions change.  Visibility is the foundation that supports every treasury decision that follows.

Forecasting Matters as Much as Today's Exposure

But current positions are only part of the picture. Treasury also needs to understand where future exposures are likely to emerge, such as:

• Sales forecasts

• Procurement plans

• Payroll

• Debt servicing

• Capital expenditures

All contribute to future foreign currency cash flows. This is why FX hedging strategies increasingly rely on rolling cash flow forecasts rather than static quarterly snapshots.

As market volatility increases, treasury teams benefit from forecasts that update continuously as business conditions change instead of relying on month-end reporting cycles. The more accurately future exposures can be predicted, the more precisely hedges can be sized.

Preparing for Continued Dollar Volatility

Whether the dollar weakens further or begins recovering later in 2026, certain truths remain constant:

• Treasury decisions are only as good as the data behind them

• Market forecasts will continue to change

• Interest rate expectations will evolve

• Geopolitical events will reshape currency markets with little warning

Organizations that can quickly quantify their exposure are far better positioned to respond than those still relying on manual spreadsheets. The objective is to understand your exposure well enough to make informed, defensible hedging decisions.

From Visibility to Better Decisions

A weak dollar doesn't automatically create risk, but unknown exposure does.

Treasury teams with real-time visibility into multi-currency cash, forecasted cash flows, and net FX positions can evaluate hedge ratios with greater confidence, respond faster to market changes, and better protect earnings from currency volatility.

As FX risk management becomes increasingly data-driven, exposure visibility is the foundation for effective treasury decision-making.

To learn more, explore how Trovata helps treasury teams gain real-time multi-currency cash visibility, improve FX cash flow forecasting, and support more informed hedging and risk management decisions. Book a demo today.