How has USD strength affected European currencies? Via Investing.com

Investing.com – The US dollar’s rise to record highs had a big impact on European rates.

Since September, the broader USD trade index has risen by 7%, driving the exchange rate closer to parity.

This strength in the greenback has led to European funds exceeding the global balance by 3% since the end of December, following the difficult second half of last year.

Software (ETR:) has been the sector’s best performer since September, outperforming the broader market by 15%, marking a significant outperformance relative to its path dictated by the USD.

Pharmaceuticals, which have a 40% exposure to US sales, have underperformed their historical USD trends, possibly due to the negative flow of news related to the stock.

Capital goods, a sector usually associated with USD strength, also beat expectations. According to BofA, the sector has “been outperformed by USD strength since September, boosted by a 10%+ move in securities against expectations of increased spending.” “European security.”

A strong dollar generally leads to negative surprises in the global economy, often appearing after a two-month lag. This happens when tight financial conditions associated with a strong USD begin to affect macroeconomic indicators.

The report says: “Global shocks have turned negative again, with a signal from the recent strength of the USD suggesting that the situation will worsen in the coming weeks .”

Despite the negative sentiment towards European equities in general, BofA maintains an overweight position in Europe relative to global rates. Analysts project risks below , with expectations of a drop of 9% to 470 in the second quarter of 2025. However, a mild decline in the Euro area PMIs may support relative activity too.

Defense sectors such as food and beverage, as well as pharma, are highlighted as key overweight positions.

BofA notes that both sectors are “underperforming due to continued downward pressure on risk for decades but should benefit once risk starts to pick up again.”

Meanwhile, banks and commodities are key cyclical underweights at BofA, due to potential pressures from potential bondbacks during the global recession.

In addition, analysts expect low bond yields to provide a performance of around 20% for the real estate sector, as well as a 12% decline for European value stocks while compared to growing up.

The semiconductor sector remains overweight, as BofA expects it to rise above last year’s underperformance based on global growth trends. Similarly, luxury goods are also overweight; however, given the 15% gain since November, further price gains are expected to be limited.