Investing.com - A rise in the euro versus the U.S. dollar so far this year could dent European corporate earnings by roughly 2%, analysts at Citi have estimated.
The euro has strengthened by around 10% against the greenback in 2025, fueled in part by many investors choosing to shift allocations away from the U.S. and into European assets. Heightened policy uncertainty and relatively better economic prospects in the rest of the world compared to the rest of the world have driven the trend, the analysts said.
They now anticipate that the euro will appreciate by around 5% from its current levels to $1.20 over the next six to twelve months.
European companies, many of which are heavily reliant on exports to support their businesses, could stand to be hit by the stronger euro, the Citi analysts led by Beata Manthey said in a note to clients.
The brokerage estimated that these foreign-exchange headwinds, coupled with ongoing uncertainty around the trajectory of U.S. President Donald Trump’s tariffs, could weigh on earnings from European firms -- particularly sectors like materials and energy.
However, the analysts noted that an appreciation in the euro has historically been offset by other factors, such as underlying economic conditions.
"Solid earnings per share growth remains possible when the euro is appreciating," they wrote. "Indeed, European forward earnings per share typically rises around 10% on average twelve months after a sizable euro rally, albeit with a wide range of outcomes."
Among some of the stock names Citi tips to benefit from a stronger euro are lenders like Commerzbank (ETR:CBKG) and PKO Bank (WA:PKO), as well as retailers like Zalando (ETR:ZALG) and Redcare Pharmacy (ETR:RDC). Companies that are boosted by a weaker euro, meanwhile, include materials firm UPM-Kymmene (HE:UPM), oil majors Shell (AS:SHEL) and BP (LON:BP), and drugmakers such as Novo Nordisk (CSE:NOVOb) and AstraZeneca (LON:AZN).