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The euro has climbed almost 13% against the dollar since the start of 2025, while the pound is up nearly 8%. The Bloomberg Dollar Index has slumped 9% since a peak in January to languish near the lowest in more than three years.

For European large caps, which generate over a quarter of their revenue in North America, the hit to earnings can be significant. It’s worse for those lacking solid hedging strategies protecting them against swings spurred by Donald Trump’s unpredictable trade policies.

A 10% rise in the euro-dollar spot rate could trigger a drop of about 2% in European earnings, according to Citigroup Inc. analysis. Currency moves are less problematic for the US, Canada, China and broader emerging market indexes, which are 72% to 85% domestically focused, against 40% for Europe’s Stoxx 600.

“The dollar is having a terrible year due to Trump’s fiscal and trade policies,” said Panmure Liberum strategist Susana Cruz. “On the losing side of this are American producers reliant on imported inputs, companies exporting to the US, particularly those selling finished goods exposed to tariffs, and foreign investors holding dollar-denominated assets.”

The most vulnerable sectors are healthcare, consumer services and products, luxury goods and software, Cruz said. By contrast, financial services, real estate, and insurance appear relatively insulated, with limited revenue exposure to dollar volatility, she added.

Exporters are more likely to feel the pinch. German chemical company Brenntag SE cut its full-year forecasts on Monday, blaming unfavorable euro-dollar exchange rates since the second quarter began. The company derives 32% of its revenue in North America, according to data compiled by Bloomberg.

It’s already shaping up as a bleak European earnings season. Analysts have downgraded their expectations and now foresee declines in profit. That leaves a low bar for companies, but further downgrades may be in store if the negative trend extends.

And, while a strong euro is usually a tailwind for European stocks, that correlation has faded lately. It’s a hint investors are starting to see a more challenging profit backdrop, despite signs of a brightening economic picture for Europe.

The EPS beat ratio is likely to be dragged closer to 50% this season, below the long-term average of 53%, due to recent euro strength, according to Bank of America Corp. strategists including Andreas Bruckner.

The strategists note that sell-side analysts expect Stoxx 600 EPS to decline by 3% year-on-year, the sharpest drop in five quarters. The first reason for that is the hit to sales from weaker demand. The second is strength in the common currency, with the euro trade-weighted index up 3.5% year-on-year in the April to June period, a five-quarter high, the BofA team said.

While the dollar has steadied in recent days, many expect further weakness. Goldman Sachs Group Inc. strategists led by Peter Oppenheimer foresee a prolonged depreciation path for the currency, bringing headwinds for European earnings with it.

“A weakening dollar has weighed on European stocks — and it is here to stay,” the team wrote in a note.

A Goldman basket of European stocks with high dollar revenues has underperformed the Stoxx Europe 600 by about nine percentage points this year. The group includes Deutsche Telekom AG, Roche Holding AG, BP Plc, British American Tobacco Plc and EssilorLuxottica SA.

The impact companies feel will also reflect their level of currency hedging. For example, while luxury stocks tend to be exposed to the dollar, the blow to earnings won’t be uniform.

Brunello Cucinelli SpA’s results were well-received by the market on Friday, with double digit-growth across all regions and no currency difficulties. The company always works with a projected exchange rate before issuing a collection, its chairman said on an earnings call.

“Companies with advanced hedging programs tend to outperform,” said Morgan Stanley strategists led by Marina Zavolock. The team noted that 38% of MSCI Europe members have such programs in place. Software, aerospace, autos, and luxury have the most advanced FX hedging strategies, they said.