Surging euro adds to European corporate sector’s struggles

Since the beginning of March 2025, the euro has risen by 9.35%. This is bad news for the EU’s export-driven economy. Companies in the STOXX 600 index generate 60% of their revenues from outside Europe, with half of that coming from the US.

Historical patterns show that a sustained 10% appreciation in the euro typically reduces corporate profits by 2–3%. US tariffs are already weighing on the first-quarter earnings outlook. Meanwhile, the International Monetary Fund has downgraded its revenue growth forecast for the EU, both for this year and next.

Several European banks project the euro may rise to $1.20 this year, though companies are already reporting weaker first-quarter earnings.

The automotive sector, vital to European exports, had already come under significant pressure from Chinese competitors prior to the US imposing tariffs.

This also highlights the challenge of how effectively companies can shield themselves from currency fluctuations, with hedging being one possible solution.

Companies have slowed their hedging activity as traders worry about locking in unfavorable rates due to the dollar’s recent sharp decline.

Corporations may also want to hedge for longer periods, but this carries risks, as tariffs could rapidly reshape their sales and production locations.