A Falling Dollar Could Hamper Eurozone EPS Growth

A falling dollar could be one of the downside risks facing the Eurozone’s recovery next year, with every 10% change in trade weighted EUR/USD reducing Eurozone earnings by nearly 7% according to Morgan Stanley analyst Matthew Garman.

Eurozone sensitive to exchange rate

“We estimate every 10% rise in the trade-weighted euro subtracts around 3% from European earnings,” writes Garman, but since the Eurozone is more sensitive to exchange rate fluctuations than Europe as a whole, it would take an even bigger hit. “Eurozone companies generate 14% of their revenues in the US, and around 55% outside of the Eurozone. This would suggest that a 10% rise in the trade- weighted euro would knock around 7% off Eurozone...