Euro's rise could cut European corporate earnings by 2%, Citi says

A stronger euro against the US dollar in 2025 could cut European corporate earnings by about 2%, according to estimates from analysts at Citi.

The euro has gained about 10% against the greenback since the start of the year, largely as investors shifted asset allocations from the US to European markets. Citi analysts say this is driven by uncertainty about global economic policy and a more positive outlook outside the US.

Citi forecasts that the euro could strengthen another 5% over the next 6-12 months, reaching $1.20 against the dollar. However, European companies that rely on exports, especially in the materials and energy sectors, are likely to be negatively impacted by the strengthening euro.

Challenges for Exporters
Citi, led by analyst Beata Manthey, said foreign exchange headwinds could weigh on corporate earnings in export sectors. However, Citi analysts noted that historically, European companies’ earnings per share growth has been able to pick up, even when the euro has strengthened.

“Most euro appreciations have historically been offset by other factors such as underlying economic growth,” the analysts said. “European earnings per share have tended to rise by around 10% in the 12 months following a strong euro.”

Potential Opportunities and Stocks
Amid a strengthening euro, Citi recommends a number of stocks that could benefit from the situation. Lenders such as Commerzbank (ETR: CBKG) and PKO Bank (WA: PKO), as well as retailers such as Zalando (ETR: ZALG) and Redcare Pharmacy (ETR: RDC), are potential stocks.

Conversely, companies that could be negatively affected by a strong euro include Shell (AS: SHEL), BP (LON: BP), and other oil companies, as well as pharmaceutical manufacturers such as Novo Nordisk (CSE: NOVOb) and AstraZeneca (LON: AZN).