Dollar’s Decline Casting a Shadow Over Corporate Earnings
The ongoing decline of the U.S. dollar is starting to send ripples across global financial markets, particularly as it impacts corporate earnings and profit forecasts for the remainder of 2025. As the greenback continues to slide, reaching three-year lows against the euro and a decade-long low against the Swiss franc, companies are increasingly flagging concerns about the negative effects of currency fluctuations on their financial results. With rising tariffs and the weakened dollar, many analysts predict that these challenges could worsen in the coming quarters, affecting both European companies and global markets at large.
A Pressing Challenge for European Companies
As the U.S. dollar weakens, companies in Europe, many of which rely heavily on international sales, are beginning to feel the pinch. The Stoxx 600 index, which tracks a wide range of European stocks, reveals that 60% of its constituent members’ sales are generated outside the continent. This exposure makes the strong euro and the low dollar particularly problematic. When the dollar weakens, U.S. earnings become less valuable once converted back into local European currencies, leading to potential declines in profit margins for U.S.-exposed companies operating in Europe.
The strength of the euro against the dollar is already starting to hurt several major corporations. Among those impacted is SAP SE, Europe’s most valuable firm. SAP’s Chief Financial Officer highlighted the weakening dollar as a medium-term earnings threat, forecasting that the negative effects would become more pronounced in 2026 when currency hedges expire. Similarly, Dutch beer giant Heineken NV, which faces a strong euro against several key currencies, estimates a revenue loss of €1.72 billion ($2 billion) for the year due to exchange rate pressures.
Other European firms, including French medical diagnostics company BioMérieux and British retailer WH Smith, have also flagged the risks associated with a fluctuating dollar in their recent earnings reports. According to Florian Ielpo, Head of Macro Research at Lombard Odier Investment Managers, European businesses are realizing that their pricing competitiveness can no longer rely on a stronger dollar. This trend is forcing companies to reassess their strategies in light of an increasingly unpredictable currency environment.
Trade Wars and Rising Tariffs Add to the Headache
In addition to the currency woes, the ongoing trade tensions—particularly between the U.S. and China—are exacerbating the challenges faced by companies. While the effects of tariffs imposed in early April are not yet fully reflected in this earnings season, experts warn that the third quarter of 2025 may see the full impact of these trade disruptions. Analysts suggest that the trade war could further weaken the dollar, potentially even pushing it into a broader decline, which would dampen the earnings of companies globally.
The U.S. dollar’s depreciation is further compounded by the broader economic uncertainty resulting from these trade conflicts. As businesses face increasing costs and regulatory hurdles, analysts are forecasting that the ongoing trade war could eventually lead to a recession in the United States. This, in turn, would continue to weigh on the dollar and affect global market sentiment.
European Stocks Under Pressure
The challenges faced by U.S.-exposed stocks in Europe have already been evident in market performance. The S&P 500 index has dropped by 8.6% in 2025, partly driven by these currency fluctuations and trade tensions. Meanwhile, European equities have seen a similar retreat, with the effects of the dollar’s decline and tariffs creating headwinds for many companies.
Morgan Stanley strategists have estimated that each 5% rally in the euro against the dollar could cut 1.5 to 2 percentage points off earnings growth for companies in the MSCI Europe index. This broadly negative impact is forcing investors to reevaluate their exposure to U.S.-sensitive companies and, instead, focus on domestically-oriented firms that are less susceptible to these currency risks.
Looking Ahead: Navigating the Currency and Trade Storms
As the year progresses, companies in both the U.S. and Europe are expected to face increasing pressure from the dual challenges of a weakening dollar and rising trade tensions. The upcoming earnings reports for the third quarter of 2025 will likely provide more clarity on the long-term impacts of these developments. With the dollar’s decline showing no signs of slowing, businesses across the globe will need to adjust their strategies and financial forecasts to navigate the complex economic landscape.
For investors, the key will be understanding the nuances of currency fluctuations and the global trade environment, as these factors could continue to influence stock market performance and corporate earnings for the remainder of the year.
