Significant USD Weakening: A Positive Signal for European Stocks?
The US dollar continues to weaken, sparking a wave of discussion among investors about the possibility of “when” rather than “if” the USD will depreciate further. According to experts from Jefferies, this trend is reshaping global investment strategies and opening up clear opportunities for the European market in particular.
🔻 Two scenarios for a weakening USD: Opportunities and risks
Jefferies identifies two main scenarios for the greenback:
A controlled decline, leading to an orderly readjustment of the global trade balance.
A disorderly depreciation, which could cause chaos in financial markets and affect global growth.
Regardless of the scenario, analysts agree that key sectors in Europe will benefit greatly.
“We see the aviation, banking, consumer, mining and infrastructure sectors as the most well-positioned in a weak USD environment,” Jefferies wrote in a recent strategy note.
💱 Why is a weak USD good for Europe?
The fact that the USD has fallen by around 8% since the start of the year is more than just a fluke in exchange rates – it reflects long-term structural shifts in the global financial system.
Jefferies believes that the focus on narrowing the US trade deficit, coupled with the gradual erosion of the USD’s reserve currency status, are the main drivers behind the current downtrend.
📈 Europe emerges: Growth, reform and attractive valuations
The combination of:
Expansionary fiscal policy
EU Capital Markets Union
Improved intra-bloc competitiveness
…is making European stocks more attractive than ever. Jefferies notes that the US weighting in the MSCI World Index has peaked, paving the way for capital to shift to Europe.
“The case for European large-cap stocks has never been stronger,” the report notes.
🧭 Portfolio Restructuring: Changing with the Times
Amid the changing FX landscape, Jefferies has adjusted its key holdings:
Added AB InBev, due to its low exposure to the USD and strong emerging market (EM) supply chain.
Removed ASM International (AS:ASMI), due to concerns about a weakening semiconductor cycle.
🏗️ Sectors that benefit: From steel to retail
In a scenario of steady USD decline, the following sectors will benefit greatly:
Sector Key benefits
Food & retail Lower import prices, improved profit margins
Steel & mining Global commodity prices in USD rise, benefiting from exchange rate differentials
Aviation Cheaper fuel, increased operational efficiency
Infrastructure Cheap raw materials, favorable for public and private investment
Banking Stable liquidity, increased funding and investment
⚠️ But don't be complacent...
Jefferies warns that if the US responds by raising tariffs or abruptly changing trade policies, global markets could face new risks. In that case, investors need to "prepare" for strong corrections.
However, the long-term outlook remains positive, especially as many European companies have:
Diversified their supply chains
Reduced their dependence on USD costs
Increased their resilience to global volatility
🎯 Conclusion: A clear opportunity for long-term investors
With the combination of a weaker USD, economic reforms and relatively attractive valuations, Europe may be on the cusp of a new growth cycle, at least from an equity investment perspective.
“This could be a rare moment where European equities offer better long-term value than their US counterparts,” Jefferies concluded.