Key takeaways
- Tariffs drove market volatility: In early 2025, US tariff announcements sparked significant global FX market volatility, especially affecting manufacturers and exporters.
- M&A activity slowed: Uncertainty from tariffs and geopolitical risks led to a decline in overseas mergers and acquisitions as companies took a cautious approach.
- Surge in FX options demand: To manage tariff risks and market volatility, corporations turned to FX options, with BNP Paribas noting a significant increase in the use of option strategies.
Tariffs, tariffs and more tariffs
If one word could sum up the driving force behind global FX market activity in the first half of 2025, it would be tariffs. The US administration’s sweeping trade announcements in March 2025 brought about huge volatility in financial markets, grabbing headlines and creating an uncertain landscape for many corporations, in particular, manufacturers and exporters.
In the aftermath of the tariff announcements, US manufacturers looked to stockpile goods in anticipation of increased trade costs, while global services businesses scrambled to protect revenue from currency fluctuations amid market volatility. With so much uncertainty in markets, how have corporates managed to navigate 2025?
M&A activity: Deal or no deal?
For corporations, the uncertainty has made it increasingly difficult to manage overseas business. With such an uncertain market environment – caused not only by trade tariffs but also geopolitical tensions and risk – many have been reluctant to announce big deals or make strategic moves.
“From a strategic standpoint, we have seen many of our corporate clients adopt a wait-and-see approach before making significant decisions,” comments Xavier Gallant, Co-Head of IRFX Corporate Sales, EMEA at BNP Paribas.
This cautious stance is evidenced by the drop in overseas mergers and acquisitions in H1 2025. BNP Paribas also saw many of its clients resort more and more to deal contingent hedging solutions when hedging their M&A induced FX risk.
Although markets have since stabilised, with US markets regaining their losses since Liberation Day, ongoing volatility and geopolitical risk continues to cast doubt on financial markets, further impacting the M&A market.
Exporters and importers: The tariff dilemma
In Europe, importers and exporters have also faced difficulties from trade tariffs. This was a stark change from the end of 2024.
In late 2024 – when the USD was strong compared to EUR – European exporters benefited from favourable exchange rates by using simple forward hedges, while importers struggled and either avoided hedging or used strategies to benefit from potential improvements in exchange rates.
However, by early 2025, the situation quickly reversed when the USD weakened against other major currencies following tariff uncertainty, and the EUR strengthened as Europe found itself in the spotlight. On 11 April 2025, the EUR/USD spot rate surged by over 2%, marking one of the largest single-day moves in decades.
European exporters found themselves hedged at less favourable rates while importers looked to restructure their hedges to adapt to more advantageous market levels.
Amid this market volatility and shifting sentiment, foreign exchange (FX) options have played a crucial role in allowing corporates to hedge against foreign exchange risks.
What are FX options?
FX options are financial derivatives that give the holder the right, but not the obligation, to exchange one currency for another at a predetermined exchange rate (strike price) on a specified date (expiration date). These options are used by corporations, investors, and financial institutions to hedge against fluctuations in currency exchange rates or to gain exposure to future exchange rate movements.
“This year, the demand for options has significantly increased as our clients seek ways to mitigate the impact of tariffs and other geopolitical risks,” comments Tristan Wood, Global Co-Head FX Options at BNP Paribas.
Rising demand for options strategies
For example, many of the bank’s corporate clients have turned to optional strategies, either via embedded bought or sold option positions. This approach made their hedging programmes more adaptable and facilitated more opportunistic transactions, allowing them to capitalise on market conditions or express specific views.
BNP Paribas well positioned
BNP Paribas has been well positioned to support clients. The bank has grown its options business over the years and is able to leverage deep expertise to navigate these markets.
For example:
- The bank was able to help numerous exporters in the aeronautical sector – which has seen a surge in demand in recent years – to secure favourable strikes to convert USD revenues into EUR, solidifying its market leadership in this space, especially with French clients.
- BNP Paribas has also worked closely with European importer clients to craft tailored strategies to help them capitalise on EUR/USD appreciation in both low and high volatility environments.
“As a European bank with a global FX franchise, we’ve been able support clients navigating the global landscape with the use of FX options”, comments Frederic Han, Senior IRFX Corporate Structurer at BNP Paribas.
BNP Paribas more than doubled the volume of option strategies traded with European Corporates in H1 2025 compared to H1 2024, highlighting the increased demand for options strategies as a means to hedge market risk and uncertainty.
As geopolitical risks continue to shape market sentiment, effective options strategies will be crucial for corporates as they conduct business in 2025 and beyond. Read more about BNP Paribas’ Fixed Income, Currency and Commodities business.