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A sharp rise in the euro against the U.S. dollar in 2025 could reduce European corporate earnings by about 2%, according to analysts at Citi. The euro has gained roughly 10% year-to-date, driven by global investors reallocating capital from the U.S. to Europe due to heightened policy uncertainty in the U.S. and relatively stronger economic prospects abroad.
Citi projects that the euro will climb another 5%, reaching $1.20 within the next six to twelve months. This currency strength poses a headwind for many European exporters, especially in sectors like materials and energy, which are more exposed to foreign exchange fluctuations.
Despite these pressures, Citi analysts, led by Beata Manthey, note that a rising euro doesn't always spell trouble for earnings. Historically, European forward earnings per share (EPS) have increased by an average of 10% over the year following significant euro rallies, though the outcomes vary widely. The broader economic environment can often counterbalance currency impacts.
Still, forex volatility combined with ongoing uncertainty around U.S. tariffs under President Donald Trump may add to investor caution. Export-driven firms are especially at risk, while others could stand to benefit.
Citi highlights companies that may gain from a stronger euro, including Commerzbank (ETR:CBKG), PKO Bank (WA:PKO), Zalando (ETR:ZALG), and Redcare Pharmacy (ETR:RDC). Conversely, firms that typically perform better with a weaker euro include UPM-Kymmene (HE:UPM), Shell (AS:SHEL), BP (LON:BP), Novo Nordisk (CSE:NOVOb), and AstraZeneca (LON:AZN).
As currency markets continue to shift, investors are watching closely to assess how exchange rates and trade policy will shape Europe’s earnings landscape.
