The strong euro has begun to "backfire" on European stocks
The euro to US dollar exchange rate has risen to a three-year high, and this strong performance of the currency is putting significant pressure on major European export companies. The continuous strengthening of the euro is not coincidental. The divergence in monetary policy between the European Central Bank and the Federal Reserve is one of the main factors driving the appreciation of the euro. Market expectations suggest that the Federal Reserve may begin to cut interest rates later this year, while the European Central Bank's stance is relatively hawkish, providing support for the euro
The euro against the US dollar has risen more than 9% to a three-year high, which has begun to erode profit expectations for major European exporters.
According to the Financial Times, the euro against the US dollar has climbed to a three-year high, with an increase of over 9%. This strong performance of the currency is putting significant pressure on major European exporters.
German software giant SAP, automaker Porsche, beer producer Heineken, and French industrial giant Schneider Electric have all warned investors about potential performance decline risks.
These European blue-chip companies share a common characteristic of having large global operations, particularly generating substantial revenue in the US market. When the euro appreciates, the dollar revenue these companies earn in overseas markets decreases in value when converted back to euros, directly eroding their profit margins.
In response to the exchange rate challenges, some European companies have begun to adjust their strategies. Some are increasing natural hedging in dollar regions and raising the proportion of local sourcing in the US. Other companies are seeking protection through the foreign exchange derivatives market, but this approach also increases financial costs.
The continued strength of the euro is not coincidental. The divergence in monetary policy between the European Central Bank and the Federal Reserve is one of the main factors driving the euro's appreciation. Market expectations suggest that the Federal Reserve may start cutting interest rates later this year, while the European Central Bank's stance is relatively hawkish, providing support for the euro.
Investors need to closely monitor the earnings call meetings of these companies in the coming quarters, as management discussions on exchange rate issues will become a key indicator of the company's resilience. In particular, medium-sized enterprises that heavily rely on US market revenue and have limited currency hedging capabilities may face more severe challenges
