The euro fell below parity with the dollar in August and has also remained there. Since the beginning of the year, the common currency has already slipped over 15 % to the dollar, but has strengthened to other European currencies, such as the Swedish krona and British pound. Exchange rate changes were also dramatic in Q3, often to the advantage of the dollar.

This text focuses on the EUR/USD pair, where the euro is now being depressed by several factors: demand for currency is typically reduced by a weaker economic growth outlook and low interest rates, both of which are fully realized in the euro area. Although the ECB has already taken steps toward recovery measures, the interest differential with the Federal Reserve has increased to its highest in over two years and it is not expected to narrow in the near term.

With monetary policy differences, market rates have increased in the US, which increases return on money across the Atlantic. In this case, it is sensible for investors seeking returns to exchange their euros to dollars and transfer their investments to the US, which generates a better return than in the euro area. At the same time, as demand is directed at dollars, the exchange rate is strengthened to the euro. The exchange rate difference is also reflected in import prices and, thus, in inflation, as dollar-denominated products become more expensive in the euro area as the EUR/USD rate is falling.

Rest of the year still rocky for the euro

Considering the cold economic winter Europe is facing and the expectations of tightening monetary policy, the rest of the year looks rocky for the euro. Estimates do not really believe in a triumphal progress for the euro either as Refinitiv’s FX forecasts expect the EUR/USD rate to still be below parity in three months’ time.

I asked our analysts which companies on NASDAQ Helsinki would benefit and suffer from the EUR/USD rate. As the responses show, currency rates affect many companies and they are summarized below.

Companies benefiting from a strong dollar:

Revenio. Around 50% of Revenio's revenue comes from the US, which is why the EUR/USD ratio has a strong impact on reported figures. In Q2, the exchange rate changes brought about EUR 2 million more revenue, of which about 60% flows into the EBIT line when we eliminate Revenio's dollar-denominated costs A majority of costs are euro-denominated.

Rovio. Last year, 67% of the company's revenue came from North America, which is mainly recognized in dollars. At the same time, costs mainly incur in euros.

Qt. Nearly 2/3 of the company's revenue is dollar-denominated. Neste also benefits from its large sales in dollars.

UPM, Stora Enso, Metsä Board. Forest industry giants have a lot of dollar trade, but their costs are in euros. Huhtamäki also benefits from its large US business.

Nokia's revenue is supported by the strengthening dollar but the earnings effect will be neutral in 2022.

Engineering industry. Erkki Vesola, our engineering industry analyst gathered exchange rate effects in the table below. Of the examined companies, Konecranes appears to benefit most from the strengthening of the USD and the positive earnings impact is also significant for Metso Outotec.

Please note about the table: Figures concerning the earnings impact are based on the sensitivity analyses presented by the companies in their 2021 annual reports. The estimated earnings effect is indicative and is based on 1) all other things being equal (ceteris paribus) and 2) the situation without currency hedging (e.g. currency forwards). Wärtsilä reports that its operations are currency hedged and thus do not expect significant effects from exchange rate changes in 2022.

Companies suffering from a strong dollar:

Certain software companies (e.g. LeadDesk), as some have dollar-denominated prices in contracts for cloud computing power.

Finnair. The airline has a lot of dollar-denominated costs, which is negative for the company.

Comments were provided by Antti Luiro, Juha Kinnunen, Atte Riikola, Antti Viljakainen, Petri Gostowski and Erkki Vesola.