Pricing and Hedging In The Age of Donald Trump and Elon Musk

As U.S. President Donald Trump announces a 25% tariff on most Canadian and Mexican imports and raises the charge on China to 20%, Trade War 2.0 has started in earnest. How should FX risk managers react? 

In this article, we’ll look at how FX pricing strategies and hedging programs aren’t just important in this market landscape, they’re the difference between protecting profit margins and watching them vanish.

We’ll also analyse how top companies link currency management programs to pricing and explore the solutions that help businesses stay ahead of the chaos. If Trade War 2.0 is rewriting the rules, it’s time to make sure your FX strategy isn’t playing by the old ones. Let’s dive in.

Joined at the hip: pricing and hedging

Companies as diverse as Hermès, Netflix and HBX Group have recently scored enormous successes in FX management, each in their own category. The French luxury firm’s highest ever annual operating profit margin of 42.1% was partly due —in Hermès’ own words— to “the favourable impact of currency hedging.”

Meanwhile, the California-based streaming giant proudly mentions its layered FX hedging program in its latest earnings report. As for HBX Group, the Mallorca-based bed-bank operator announces an upcoming Initial Public Offering, with eyes firmly set on a €5bn valuation.

Strikingly, these firms apply pricing criteria that differ widely from one another. We outlined these parameters —and how to protect profit margins from FX fluctuations in each case— in our blog Debunking 4 Currency Management Myths: Protecting Profit Margins in 2025: 

• ‍Firms with catalogue-based pricing‍
• ‍Firms that price across budget periods‍
• ‍Firms that frequently update prices

FX volatility in the age of Donald Trump and Elon Musk

Now, let’s look at the importance of pricing in FX management. Ever since Donald Trump’s return to the White House, managers have had to contend with a new reality: a tweet or an impromptu statement from either the president or his advisor Elon Musk can lead to swift market adjustments—including daily moves in excess of 1% in key exchange rates.

This is well captured by the implied 1-month volatility in EUR-USD (Bloomberg):

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The return of volatility in currency markets provides the ideal backdrop to tackle the question of pricing and FX risk management. We will concentrate on the following topics:

• ‍The notion of pricing risk
• The importance of using the forward FX rate‍
• ‍How to set markups when protecting budget rates‍
• ‍Why technology is needed to effectively manage currencies

Pricing as a hedging mechanism

Pricing risk is the risk that —between the moment an FX-driven price is set and the moment it is updated— shifts in FX markets can impact either a firm’s competitive position or its profit margins. In 2025, a tweet by the U.S. president can wreak havoc in terms of profit margins at (unprepared) companies.  

The natural way to reduce it is to increase the frequency of price updates. After all, pricing is itself a hedging mechanism. But that is not an option for companies that wish to keep steady prices during a campaign/budget period or during a set of periods linked together. 

One solution is to set boundaries around an FX reference rate, such that prices are updated only if the market moves beyond the upper and lower bounds. The system then serves a new reference rate and dynamically adjusts the upper and lower bands around it. 

On the other hand, if FX markets remain relatively stable, the managers can keep prices unchanged, something that is attractive in many B2C setups. 

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Pricing with the forward rate

U.S. President Donald Trump recently called for lower interest rates on his Truth Social platform: “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!! Let's Rock and Roll, America!!!” he wrote. 

While it is unclear if Mr Trump referred to short- or long-term interest rates, the reality is that interest rate differentials between currencies are back in vogue. Short-term interbank interest rates in different currencies vary widely across the world: 13.25% in BRL, 7.50% in ZAR, 5.75% in PLN, 4.25% in USD, 2.90% in EUR and 0.50% in CHF. 

This has implications for currency managers, both in terms of pricing and hedging. European firms pricing in BRL —for example, French retailers Carrefour and Danone— can use the forward EUR-BRL to set prices, as BRL currently trades at a 9% one-year forward discount to EUR.

Conversely, firms selling into low-interest rate currencies can take advantage of the implied forward premium by pricing with the forward rate. This helps them enhance sales-to-asset ratios. Failure to take advantage of such opportunities is a shortcoming at a time when —according to consultants McKinsey—pricing is a key strategic element. 

Setting markups when protecting the budget rate

When selling in USD, many European firms use catalogue-based pricing models, i.e., they keep prices steady during an entire campaign/budget period. Prices are updated, if needed, at the onset of a new period.

This situation presents a number of FX-related challenges, not least about how to set the budget rate used in pricing. What do best practices recommend? One useful approach is to set a markup at the time of budget creation, say 3%.

If spot EUR-USD trades at 1.09 at the moment the budget is set, this would represent a 3% markup to the 1.1227 rate used in pricing. This rate, in turn, can be protected by setting three conditional stop-loss orders —each for ⅓ of the exposure under management— at 1.1336 (+4%), 1.1227 (3%) and 1.1118 (+2%).

For a European-based exporter of manufactured goods, we backtested a combination of hedging programs especially well suited for such a setup. On top of the ‘static’ element, a micro-hedging program for incoming firm sales orders is added. When the dollar is weak and stop-losses are hit, hedging is executed at the budget rate, and profit margins are protected.

When the dollar rallies, hedging is carried out on the back of firm sales orders at rates that ‘outperform’ the budget rate by an average of 13% (between 2021 and 2024). Note that, whatever the scenario for the EUR-USD rate, hedge execution is delayed, providing additional benefits in terms of: 

• ‍Forward points savings‍
• ‍Additional time to update forecasts‍
• ‍Uncovering exposure netting opportunities

With such combinations of “Static + Micro-Hedging” programs, managers systematically protect the firm from unwanted currency market fluctuations, whatever the path of the EUR-USD rate. 

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Managing FX in the midst of Trade Policy Uncertainty

Trade Policy Uncertainty (TPU) is an empirical indicator based on news indices that compute the fraction of newspaper articles on trade policy that contain related keywords. TPU can lead to FX market volatility, changing interest rate differentials between currencies, and less-than-stellar cash flow visibility.

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This is exactly what happens in the wake of tariff-related announcements by President Trump. Now consider the workflow of a team in charge of managing pricing and transaction risk without the adequate tools: 

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Announcements that increase Trade Policy Uncertainty can derail the entire process, especially for businesses that operate on tight profit margins. At the operational level, matters are made worse by the absence of automated processes, as spreadsheet risk and email risk pervade the entire workflow.

Adding resilience with automated micro-hedging programs

During the Q4 2024 earnings call, Netflix’s CFO Spencer Neumann told investors that revenue increased 16% "despite the strengthening of the US dollar vs. most currencies". He went on to add: 

"We try to hedge roughly 50% on a rolling forward 12-month basis [...] our hedge program is a price averaging program to smooth the impact of FX, reduce the volatility from big near-term FX moves, and avoid short-term swings to the business" — Spencer Neumann

This is very well put. Pricing and FX hedging are two faces of the same problem, namely, managing a firm’s profit margin and competitive position under any scenario in currency markets. 

In this age of Trade Policy Uncertainty, protecting profit margins from currency market fluctuations requires tools that enhance the resilience of treasury teams. This is why a micro-hedging program for firm commitments —either on a standalone basis or in combinations of programs— should be an integral part of your currency management toolkit.