The writer is European strategist at Goldman SachsThe effects of Europe’s energy crisis can be seen across all assets, not least currencies. The euro has been bumpy around parity with the dollar, a two-decade low. Sterling is hovering around the lows seen at the worst point of the pandemic.
This strength of the dollar in recent months is partly a function of monetary policy tightening by the Federal Reserve, but it’s also a function of the US economy’s greater resilience. Or, put another way, Europe’s fragility. The average US household may consume a lot more energy than the average European one but, in contrast to Europe, the US enjoys energy independence.
That said, these foreign exchange adjustments can have some benefits. The collapse in Europe’s currencies should have a plus side, especially for large-cap international companies. The Stoxx 600 derives only 40 per cent of its sales revenue from Europe itself. About a quarter comes from North America, slightly more than 20 per cent from Asia-Pacific and the remainder from other emerging markets. Indeed, as a single country, the US is the largest exposure for big-cap listed European companies, larger than German and French sales exposure combined.