Currency depreciation is increasingly driven by US investor activity abroad, rather than solely by uncertainty surrounding US trade policy, according to Gerry Fowler, Chief European Equity Strategist and Head of Derivatives at UBS. Fowler’s assessment, delivered to Bloomberg Television, marks a shift in the factors influencing the dollar’s performance.
Even as trade policy concerns were a dominant force in 2023, Fowler indicated they are now secondary to the flow of capital leaving the United States. This outbound investment is exerting downward pressure on the dollar, a dynamic not fully captured by focusing exclusively on tariff anxieties.
European stocks have experienced volatility amid earnings reports, though Barclays has seen a rally. Broader European market performance has been mixed, with cyclical sectors showing gains that offset declines in the technology sector, according to recent reports. This suggests a complex interplay of factors within the European market, potentially attracting US investment as investors diversify portfolios.
Defense stocks are facing scrutiny as earnings season unfolds, with continued rallies contingent on positive financial results. The sector’s performance is being closely watched as a barometer of investor confidence and the sustainability of recent gains.
Analysts are likewise highlighting specific European stocks poised for growth in 2026, spanning sectors from banking to renewables. These recommendations suggest a positive outlook for certain segments of the European market, potentially further incentivizing US investor interest. Banks and renewable energy companies are being specifically tipped as areas for potential investment.
The evolving dynamics in European markets, coupled with the shift in drivers impacting the US dollar, present a complex landscape for investors. The interplay between trade policy, earnings reports, and capital flows will likely continue to shape market trends in the coming months.
