LIVE MARKETS-How could a lower US dollar impact earnings?

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HOW COULD A LOWER US DOLLAR IMPACT EARNINGS?

A softer U.S. dollar could leave a visible imprint on company earnings this year, amplifying profits for some firms while quietly eroding them for others.

A weaker dollar tends to lift reported earnings for U.S. companies with large overseas operations, but can pressure profits for non-U.S. exporters and companies exposed to higher dollar-denominated input costs, economists at BofA Global Research said.

For Europe, they estimate 2026 earnings per share for the STOXX Europe 600 could fall about 4.5% if the euro holds around $1.19, with Energy and Utilities set to benefit the most, while Construction & Materials and Autos & Parts face the biggest earnings drag.

For U.S. multinationals, the effects are often mechanical. Revenues earned abroad translate into more dollars when the greenback weakens, lifting reported sales and earnings even if volumes are unchanged. Technology, Healthcare and Consumer Staples companies, which derive a large share of revenues outside the United States, are among the biggest beneficiaries, BofA economists said.

The flip side is tougher for firms with currency mismatches. Companies that earn revenues in dollars but carry costs in strengthening local currencies can see margins squeezed. In global travel and leisure, for example, some operators with U.S.-priced revenues and non-U.S. cost bases are among the more exposed to dollar weakness, recent analysis from Bernstein shows.

"Current dollar weakness laps dollar strength in Q1 2025 and will create a largely unprecedented FX swing in 1Q, which will slowly dampen as the year goes on," Bernstein analysts wrote, adding they raised estimates for Airbnb, Booking and Carnival by ~2‑3% and trimmed Hyatt by ~3%.

Outside the U.S., the effect can flip: a stronger euro makes European exports less competitive in dollar terms unless companies cut prices, absorb margin pressure or hedge. Autos, machinery and building materials are most exposed, while domestically focused utilities are more insulated.

With the dollar's retreat following a period of strength in 2025, investors will scrutinise upcoming earnings for how much of the FX impact companies view as temporary and how much is shaping guidance for 2026.

(Rashika Singh)

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