On May 21, the euro hit $1.133 against the US dollar — a 1.3% weekly jump.* It wasn’t a technical breakout. It was a stress test for corporate currency exposure, and most US multinationals failed it. According to Bank of America, 62% of them are sitting on net negative euro exposures, with hedging ratios running 18% below normal for this point in the fiscal year. In plain terms: they’re underhedged, and it’s costing them. Based on commonly used currency sensitivity models, every 1% rise in the euro now cuts roughly $2.1 billion from quarterly earnings across S&P 500 companies with eurozone exposure. That impact is immediate and it’s landing at the same time as new tariff pressures from Washington.

Why This Volatility Isn’t Random

The euro’s movements in May were unusually unstable. Between May 13 and 16, EUR/USD dropped to $1.114. By May 19 it had rebounded to $1.128, and on May 21 it hit $1.133.* Intra-month swings of nearly 2% are usually very rare. Three underlying forces are driving the move. First, tariff arbitrage — euro buying surged after the May 15 announcement of potential 10% US tariffs on EU auto imports. Second, the yield gap is closing. The ECB’s hawkish tone narrowed the US-EU two-year yield spread to 75 basis points, down from 125 in April. Third, central banks are reallocating: euro-denominated assets now make up 22.5% of global reserves, up from 20.1% in 2024. These aren’t technical blips. They’re structural flows.

EUR/USD performance over the last 5 years (Source: tradingview.com)

Corporate Hedging Gaps Are Now a Liability

US corporates were unprepared. BofA’s May 18 data show $4.8 billion in net short EUR positions. For Q3, hedge ratios are averaging 42%, well below the 58% historical average. More concerning: 73% of companies are running static hedge models, meaning they’re not dynamically adjusting to volatility spikes like those seen in May. The result is a reflexive risk loop. Every move higher in the euro forces late hedging at worse rates, which in turn pushes the currency higher. If EUR/USD breaks $1.14, BofA estimates another $12–15 billion in forced catch-up hedging could flood the market, potentially amplifying the rally even further.

Sector Breakdown: Who’s Exposed

Some industries are absorbing the shock more directly than others. US automakers with production in Europe are facing an average 14% hit to EBIT. Pharma companies are overshooting clinical trial budgets, with 23% of costs tied to euro-denominated sites. In tech, cloud services are seeing 9% revenue pressure due to fixed euro-zone pricing while input costs rise. These aren’t accounting distortions — they’re operational impacts. Margins are getting hit at the source.

How Leading Firms Are Responding

A few companies are adapting — quickly. Some are layering hedges automatically when 30-day volatility breaks above 8%. Others are embedding FX adjustment clauses in supply contracts or allocating liquidity buffers specifically for derivative margin calls. On the operational side, there’s a clear pivot. A growing number of manufacturers are nearshoring critical suppliers to Eastern Europe. US exporters are issuing more invoices in euros — up 34% year-on-year. Pricing engines are being rebuilt with real-time FX sensitivity baked in. These aren’t small tweaks. They’re structural shifts in how FX risk is managed.

Markets and Regulators Are Moving Too

The derivatives market is pricing in the shift. Six-month euro call premiums are up 35% since April. EUR/USD futures block trades have surged by 140%. And there’s increasing use of euro-pegged stablecoins among tech companies for cross-border payments — a move that bypasses traditional FX pipelines entirely. Regulators aren’t standing still either. On May 18, the FASB issued emergency guidance requiring weekly hedge effectiveness testing and mandatory stress scenario modelling for ±15% currency moves. FX risk isn’t a back-office concern anymore — it’s under audit.

Global US Companies Need to Rethink Their Strategies

The euro rally exposed how many US firms still run outdated, inflexible hedging strategies that fail under real volatility. And if the ECB stays hawkish while the Fed remains passive, which now seems likely, this isn’t the last time those vulnerabilities will be tested. The playbook has to change. Companies need to stop treating FX risk as a quarterly afterthought and start managing it as a core strategic function. That means AI-driven exposure monitoring, treasury integration with procurement and supply chain teams, and — for some — rethinking the very geographies they operate in.

The companies that adapt now will stabilize earnings, preserve pricing power, and stay ahead. The ones that don’t will find themselves explaining quarter after quarter why external factors keep dragging performance down. May 2025 didn’t just send a message. It handed them a deadline.

* Past performance is no guarantee of future results.